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A PORTION of this work consists of a series 
of articles recently contributed to Blackwood's 
Magazine. The articles have been revised and 
re-cast, in order to obtain the symmetry requisite 
in a book. And in order to give completeness 
to the work, the concluding portion of the essay 
on the Economy of Capital (as originally pub- 
lished) has been withdrawn; and in lieu there 
is given a new chapter, on the Bank of England, 
— containing a full exposition of our Monetary 
System, and of the reforms which are requisite 
in order to bring it into harmony with the 
spirit of the age, and the requirements of the 

The immediate cause of publication is the 
desire that has been expressed in many quarters 
for a reprint of those articles — particularly the 
" Economy of Capital'' and the " City of Gold.'' 



The subject of wliicli this volume treats, has 
long been to me an interesting study ; and, as 
a journalist, I have had a good opportunity 
of collecting facts, and of forming my opinions, il 
from a watchful observation of the course of 
events during the last fifteen years. 

R. H. P. 

London, November 8, 1864. 








THE GOLDEN AGE : — Effects of the Gold Dis- 
coveries ON THE World, 29 














the double standard, 59 

nature's reform bill, 60 













CRISIS OF 1857, .... 




















































































SIR R. peel's OBJECT AND MISTAKE, . . . 244 


























THE bank's MONOPOLY, 299 











THE bank's capital TOO LARGE, . . . .318 

WHY IT IS SO, 320 

















LAND, 350 












its influence on the world, 
England's nilometer, 
our sources of wealth, 
our imports, 
our exports, 
our consumption, 

CORN, . 













"the city" in TROUBLE, 
































note 421 





No. I. — Synopsis of the Position of the Principal 
London Joint-Stock Banks, January 1 to June 30, 1864, 
drawn up by the Author from the Balance-sheets exhibited, 
Eeports rendered, and Speeches made at the recent Half- 
yearly Meetings, 434 

No. II. — Comparative View of Scotch": and English 

Banking, 435 


No. I. — Table showing the changes in the Bank of Eng- 
land's rate of discount from 1695 down to the i^assing of 
the Bank Act in the Autumn of 1844 ; and also the amount 
of coin and bullion simultaneously held by the Bank subse- 
quent to 1822, 438 

No. II. — Table showing the changes in the Bank of Eng- 
land's minimum rate of discoimt subsequent to the passing 
of the Act of 1844 ; and also the amount of coin and bul- 
lion held by the Bank at the date of these changes, . . 439 


The Monetary Crisis at Hamburg in 1857, . . 442 


What is a Pound? 444 



P, 55. For •' the non-producers at the expense of the producing 
classes," — read "the producing classes at the expense of the 

P. 133, 16th line from top, for "Finch," read " Birchin." II 
P. 226, 11th line from foot, for "one-fifteenth," read "one- 

Page 233, eighteenth line from top, delete " a sum equal to double the annual 
savings of the nation in 1857." 

Page 236, sixth line from top, for "bonus" read ''loans." 




In the spring of 1854 there was discovered in Aus- 
tralia one of the richest " placers," or gold-beds, even 
of that most auriferous country. The spot was a 
deep ravine, formed by the Buckland Eiver, enclosed 
by steep mountain-sides which excluded every breath 
of wind. It was autumn in Australia, though spring 
here. The air in the ravine was stagnant, and the 
scorching sun made it intensely hot during the day, 
while at night the temperature fell to a piercing cold ; 
so that the sojourners in the ravine were alternately 
in an oven and an ice-house. Moreover, as the gold- 
beds lay in the channel of the river, the miners 
worked up to their waists in water. To this gold- 
field of surpassing richness hundreds of adventurers 
flocked in feverish haste ; but disease, like the fabled 



dragons and griffins of old, kept horrid sentry over 
the buried treasures. A peculiar fever, of the ty- 
phoid character, was the natural denizen of the spot ; 
besides which, the gold-seekers suffered severely from 
eye-blight, owing to the concentrated blaze of the 
sunshine reflected from the steep sides of the ravine, 
and they were at all times grievously tormented by 
clouds of flies. Bad diet and want of vegetables 
aggravated the diseases natural to the place and to 
the kind of work. In the strangely interesting ac- 
counts which then reached us, we read of onions 
selling at six shillings a pound ; and cabbages, which 
we buy here for a penny, were so precious that they 
were cut up and sold by weight — from half-a-crown 
to four shillings the pound being readily paid for 
them. Physic, or what passed for it, rose in price in 
a still more startling manner — HoUoway's pills selling 
at one shilling each, or a guinea per box ! It was a 
Valley of Death. " Constitutions that had borne the 
hardships of other fields broke down here," wrote an 
eyewitness of the scene ; " and hundreds have per- 
ished, dying unattended and unknown. The little levels 
between the stream and the base of the mountain-wall, 
for ten miles along the valley, are so thickly studded 
with graves that the river appears to run through a 
churchyard." One new-comer, wiser than the rest, 
having counted eleven corpses carried past his tent 
during the dinner-hour of his first working day, and 


thinking that even gold may be purchased too dearly, 
left the place instantly. Many abandoned it after a 
somewhat longer trial. But the greater number, fas- 
cinated by the unusual richness of the gold-beds, re- 
mained in defiance of disease, and " took their chance," 
— with what result the numerous graves of the valley 
testify to this day. 

It was a scene " to point a moral or adorn a tale." 
Had some wandering Spirit from another planet looked 
down upon that valley of death, or upon the many 
other striking incidents of the gold-fever of the last 
fifteen years ; if he had seen men in myriads rushing 
across oceans and continents to the gold-fields of Cali- 
fornia and Australia, waste places in the uttermost 
parts of the earth ; if he had beheld them toiling in 
the gulches of the mountains amidst all manner of 
hardships and disease, beset with extremes of weather, 
exhausting work, exorbitant prices, and lawless society, 
— ^he must have said to himself, " Surely mankind have 
some mighty end in view, when so many myriads come 
here to toil and suffer with such feverish energy and 
extraordinary endurance.'' Yet the yellow substance 
which these crowds so eagerly seek after, what could 
it do for them ? They could not eat it or drink it, — it 
was neither food, medicine, nor clothing : it was simply 
a metal of unusual weight and ductility, and exhibiting 
a yellow lustre. And were this wandering Spirit to 
show a piece of the yellow metal to one of the natives 


of the country, and ask its use, the savage would tell 
him that it served to make rings for wearing in the 
nose and ears, or on other parts of the body, by way of 
ornament, but otherwise was of no account, — it could 
neither head an axe for him nor point a spear. In 
fine, were this planetary Sage, following the track of 
the gold-ships, to proceed to Europe and the abodes of 
civilisation, to see what is made of the metal which 
men seek for with so great eagerness, he would find 
that the getting of it is so expensive that (unlike iron 
and lead) it is of no use in the necessary commodities 
of life, and only figures as a costly means of ornament 
and decoration. He would find it, in fact — so far as 
the arts of life are concerned — closely allied in charac- 
ter to gems and precious stones, the exorbitant prices 
given for which show how much barbarism still lurks 
under the cloak of civilisation. 

But this inquiring Spirit would also see another side 
to the question. Were he to go into our banks, our 
marketplaces, our counting-houses, he would speedily 
comprehend the object for which we mortals seek gold, 
and prize it so much. If he were to visit the great 
monetary emporium in Threadneedle Street, with its 
busy throng of customers ceaselessly depositing or 
withdrawing the yellow metal, and thereafter were to 
watch for half an hour the gay crowds who go a-shop- 
ping in Eegent Street, he would see that this metal is 
the recognised symbol of property into which we can 


convert our wealth — whether it he of land, houses, or 
merchandise — storing it up in little space, and which 
we can reconvert into any kind of property at pleasure. 
He would see that by common consent nearly one- 
half of the entire civilised population of the earth take 
this view of the matter, and have made the yellow 
metal indispensable to them, by decreeing it to be the 
substance out of which shall be made the counters 
with which men buy and sell, and reckon up the gains 
of material existence. But what of the other half of 
the civilised world ? Here the doubts of our planetary 
Sage would begin anew : for he would see that this 
enthroning of gold as a special and almost sacred metal 
is, after all, a purely arbitrary proceeding, and that 
civilised mankind are divided on this question into 
two rival and hostile camps. Six hundred millions of 
the human race (constituting fully two-thirds of the 
civilised population of the globe), in China, India, 
and Japan, and in Asia generally, repudiate the 
peculiar value attached to the yellow metal by 
their Western brethren, and exalt a shining white 
metal into a like conventional importance. If gold 
reigns in the West, silver rules in the East. And what 
of that outer world, those regions beyond the pale of 
civilisation which stiU occupy so large a portion of the 
earth's surface ? There, among the uncivilised races of 
the world — in Africa, in parts of America, and among 
the multitudinous islands of the Pacific — we find that 


the counters in which men condense their gains and 
carry on the commerce of life are little shells picked 
up on the sea-shore ; or else, that counters are dis- 
pensed with altogether, and trade is managed by 
simple barter. ^| 

Barter is the fundamental basis of commercial 
transactions ; bullion is an accessory — most convenient, 
but very costly. In countries which have not the a^cHl 
vantage of wealth and civilisation, an ox is bartered 
for so many sheep, a gun for so many skins of the 
beaver or tusks of the elephant, &c. But, among weal- 
thy and civilised nations, the consumers have so many 
various wants, and, owing to the division of labour, 
each worker produces so little that is of use to himself, 
that simple barter becomes too cumbrous a process in 
wholesale transactions, and utterly impracticable in 
shopping, and other forms of retail business. Civil- 
isation, therefore, has to pay for the infinite luxuries 
of life and subdivision of labour, which are its boast 
and enjoyment, by introducing a class of objects — 
counters or " currency " — the only use of which is to 
facilitate the exchange of commodities in buying and 
selling ; and, secondarily, by representing value in little 
bulk, to admit of the gains of life being reckoned and 
possessed in less cumbrous form than houses and land, 
herds of cattle, or ships and merchandise. It is a form 
of wealth established for the purpose of representing 
all the other forms ; and which, almost worthless of 


itself, derives its value from the other kinds of pro- 
perty of which it is the acknowledged representative. 
Gold and silver are the articles which civilised man- 
kind have chosen as the prime materials out of which 
these counters of commerce and of life's gains shall be 
made. And in order to procure the material for these 
counters, himdreds of thousands of human beings pro- 
ceed to the uttermost parts of the earth, encamp in the 
wilderness, and suffer in an aggravated form hardships, 
privations, and death, — toiling, as in that valley of the 
Buckland Eiver, in pursuit of the yellow dross in 
which civilised man insists upon counting up his 
gains. The cost of the conveyance of these men to the 
distant gold-countries, the cost of their living in a 
region where everything is very dear, owing to the dis- 
tance from which it must be brought, and the extra 
profit which is needed before men will go so far and 
suffer so much — these constitute the price which 
civilisation pays for its money - counters. It is a 
heavy price : and each ounce of gold represents so 
much labour withdrawn from agriculture and other 
industrial pursuits, which minister directly to the 
necessities and comforts of mankind. 

It would be a curious inquiry to trace the mode in 
which gold, at first esteemed only for its ornamental 
qualities, was gradually invested with a wider value, 
until it came to be recognised as the most stable form 
of wealth, as the most negotiable of all kinds of pro- 


perty. The world, in its present temper, must have 
gold to carry on its grand game of buying and selling, 
and of condensing its ever-accumulating wealth ; but 
it is well to remember the cost of this convenience. 
When a farmer purchases his neighbour's ox with half 
a score of his own sheep, or when the English mer- 
chant exchanges his printed calicoes for the rice of 
India, the sugar of Brazil, the tea of China, or the 
wool of Australia, he conducts his business in a way 
which for cheapness cannot be equalled. One useful 
commodity is given for another, — that is all. But in- 
troduce gold or silver money into the transaction, 
elevate a barbaric ornament into a symbol of universal 
value, and consequently into a medium of purchase, — 
and then you have an artificial element introduced, 
and a very costly one. Gold is of itself an article of 
produce : it is obtained from the diggings in the same 
way as coal is quarried, sugar grown, or calico manu- 
factured — namely, at the expense of labour ; and the 
expense of labour is just the expense of the articles 
given in exchange for labour. And unlike most other 
commodities, this metal is intrinsically of little use to 
mankind ; it is almost useless, save as money — as 
counters by which wealth is reckoned and purchases 
are made. A purchase by money is still a process of 
barter, but it is in an artificial form. It is no longer 
one useful article exchanged for another ; but an in- 
trinsically useless and most expensive article is kept 



up by the public simply for the purpose of symbolising 
wealth, and of facilitating the transfer of the really 
useful commodities. 

Mankind have slid so insensibly into this state of 
things — the canonisation of gold as a peculiar metal 
and universal representative of property has taken 
place so gradually, that the remarkable character of 
the fact is little considered. Is it not a striking fact 
that mankind should have agreed among themselves, 
without any deliberation, and as if by instinct, that it 
was advantageous to have some medium in which 
wealth could be accumulated in a condensed form — in 
a form widely acknowledged, and therefore negotiable ; 
and that they should have selected for this purpose a 
material which, though prized in barbaric times as an 
ornament, intrinsically is almost worthless ; — that they 
should, without thinking, have established a means by 
which the wealth of every one, or his claims upon the 
labour not only of his own community but of mankind 
at large, should be correctly represented — a means by 
which the relative wealth of every one is measured 
and registered, as it were, in the Domesday Book of 
Civilisation, and made available for the instant pur- 
chase of whatever he wants ? 

All the world is busy playing the game of life : men's 
natural talents are the cards in hand, and Money is the 
counters in which their gains are reckoned and their 
respective wealth embodied. Money serves the same 



purpose in the stern game of life that counters do in 
games of amusement — and no more. Money, as regards 
its material, is of as little use to those who possess it as 
the bone or ivory or mother-of-pearl out of which are 
made the counters of the card-table. But what a differ- 
ence in the cost ! Men with infinite labour ransack the 
world for the rare material out of which they chiefly 
make their counters for the game of life ; whereas 
counters for the card-table can be made in a moment 
out of any material — paper, wood, leather — that comes 
first to hand, and which the players agree amongst them- 
selves to adopt. Yet, after all, does not the value of 
all kinds of counters, whether they be made of gold, or 
bone, or paper, depend upon such an agreement ? And 
is it not probable that some day it will become a ques- 
tion whether we do not pay too dear a price for the 
convenience of money ; and that future generations, 
enjoying a more advanced civilisation, will look back 
with pity on our " barbarism " in wasting so much 
wealth for the mere purpose of registering our wealth, 
and in employing such an infinitude of labour upon 
what could be accomplished without any ? A^B 

The European nations are in the van of the world — 
they are the chiefs of civilisation ; and if grand old 
Milton in his day spoke disdainfully of the pomp which 
delights in " barbaric pearl and gold," regarding it as 
a foible of the East, it is not to be thought that 
any sensible man of our time will ascribe the great 


value of gold to its mere attractiveness as an ornament. 
Doubtless it was its fitness for ornamentation which 
first, in the world's infancy, led men to attach value to 
gold. But this cause of the value of gold has long ago 
become quite subsidiary : indeed, its value is now main- 
tained only in consequence of the metal having acquired 
a new and greater repute from an entirely different 
source. To have imparted a conventional value to an 
article for the sake of making it a medium of exchange, 
would have been very difficult in early times (though 
it was accomplished at Carthage), and quite impossible 
beyond the limits of a single community. Instinc- 
tively, therefore, and perhaps unconsciously, Civilisa- 
tion availed itself of the high value which earlier times 
had attached to gold as an ornament, as a basis for 
giving to^ that metal an equal value of a civilised 
and really useful kind. Civilisation found that gold, 
from its wide acceptance or negotiability, its scarcity, 
portability, and divisibility, would make an excellent 
material for supplying counters for trade ; and these 
counters, of course, became thereafter condensed wealth 
— a convenient form in which wealth might be com- 
pactly stored and easily carried about. 

The great value, therefore, now ascribed to gold, and 
which makes men seek for it all over the world, arises 
from the fact that it constitutes Money. 


But what is Money ? What is the characteristic 51 
this something which imparts a peculiar value to gold, 
and which disperses civilised mankind into the wil- 
dernesses of the world to search for the yellow 
metal ? Every one knows that money is a good thing 
to have, and that there is no doing without it, — that 
it is used in buying and selling, — that men get it by 
giving for it labour or goods, and in exchange for it ]j 
supply themselves with the comforts or luxuries of 
life. But what constitutes Money? Is money, like 
the pearl and the diamond, and some other prized 
articles, a thing which man must necessarily take from 
the hand of Nature ? Or can he not make it for him- 
self ? And if so, what conditions are necessary for its 
production and circulation ? Of what substances can 
money be made ? and how do these substances come 
to be recognised as symbols of value ? 

The Currency of the world includes many kinds of 


Money. Gold, silver, copper, iron, in coins, or by 
weight — stamped leather, stamped paper, wooden tal- 
lies — shells of various kinds — pieces of silk, or strips 
of cotton-cloth, of a fixed size and quality — are, or 
have been, all in use among mankind as forms of cur- 
rency, as convenient and negotiable forms or represen- 
tatives of property. Many of these kinds of money 
are simultaneously in use in the same country. Gold, 
silver, copper, and stamped paper coexist as different 
forms of money in the currency of Europe and Amer- 
ica ; gold, silver, paper, copper, and shells, in India ; sil- 
ver, copper, and pieces of silk, in China ; copper, cotton- 
strips, shells, and the silver dollar, in various parts of 
Africa. Sparta had a currency of iron — Carthage of 
stamped leather, like our paper-money. There is ample 
variety in the substances out of which money is made, 
— metals, shells, cloth, leather, paper. Moreover, every 
country shapes these substances, or such of them as it 
uses for currency, in a different form from the others. 

What, then, is Money ? It is obvious that we need 
not seek a definition in the intrinsic qualities of the 
substances out of which money is made ; for there is 
not a single intrinsic quality which is common to them 
all. The generic quality which constitutes money is 
manifestly something extrinsic to those substances — 
some quality superimposed upon or attributed to them, 
or at least to the shape which they assume as currency. 

If English merchants send out sovereigns to China, 



the Chinese will not receive these coins as money — 
nor any other kind of gold coins. Gold is not money 
in the Celestial Empire : one-third of the human race 
(nearly one-half of the civilised population of the 
globe) there refuse to accept the yellow metal as 
currency. Even in India, where gold-coins have 
been in use from the earliest times, the value of 
gold is greatly diminished owing simply to the fact 
that it is not recognised as money by the Govern- 
ment.* In like manner, if the Chinese or Hindoo 
merchant were to send payment of a large sum in his 
silver coins to this country, it would be extremely 
embarrassing to the English merchant. 'Not only will 
the coins not pass current in this country, but even as 
bullion they are of little use in making payments. If 
a man in this country seek to discharge a debt even in 
our own silver coins, the creditor is entitled to refuse 
payment in such a form. Silver is not money — is not 
a legal tender — in this country, save to the extent of 
forty shillings. Above that amount, it is simply bul- 

* In December last, during the dearth of money at Calcutta, mer- 
chants who took £20,000 in gold to the Bank, could not get a single 
bank-note or rupee advanced upon it. The gold was of no use to 
them as money, nor could they get money in exchange for it. ' ' The 
price of gold in Calcutta," said the Bombay Times of January 29, 
1864, " sunk early in this month so low, that it could have been 
resliipped to London at 3 per cent profit." In other words, although 
gold is the standard-money of Europe and America, and although 
it has been used for centiuies as money in India, the mere fact of 
its not being a legal tender in that country sufficed to lessen its 
value to the extent of 4^ per cent. 


lion : it is no more money than brass or tin or plati- 
num is. Again, we laugh when a semi-civilised people 
propose to pay us for our manufactures in sea-shells, 
or some other form of non-metallic currency ; but we 
find some of those people not less averse to receive 
our gold and silver coins which we regard as the per- 
fection of currency. They do not see the use of them. 
Barbarous tribes will sell to us their produce for col- 
oured glass beads and suchlike valueless trinkets, in 
preference to money or other articles which in our 
estimation are infinitely more valuable. We see, then, 
that the substances which some civilised nations regard 
as the best, if not as the only standard form of money, 
other nations, although civilised, refuse to acknow- 
ledge or accept as money at all. Moreover, even when 
difi'erent nations use the same substances as money, it 
sometimes happens that they differ widely in the rela- 
tive value which they attach to these substances. 

A few years ago, when the trade with Japan was 
opened by Lord Elgin's mission, our merchants were 
surprised to find that the Japanese appraised gold and 
silver very differently from us ; so that a sovereign, a 
napoleon, or any other piece of gold, whether in coin 
or as bullion, was esteemed by the Japanese equal to 
only about one-fourth of the quantity of silver which 
the same amount of gold represents in Europe. A 
not less curious monetary fact may be cited from 
Chiiia. Half-a-dozen kinds of silver coin are current 



at Shanghai — ^ve kinds of the dollar, and the Indian 
rupee ; but a few years ago only one of these coins, 
the old Spanish Carolus dollar, was a legal tender. In 
consequence of this, although the intrinsic value of all 
the dollars was nearly alike, the old Carolus dollar 
(which is becoming scarce) was worth 7s., whereas the 
others were barely worth 5s. A difference of 40 per 
cent ! The only reason for the preference was, that 
the Carolus dollar was the one which was best known 
to the Chinese merchants, and in which, accordingly, 
they had most confidence. This state of matters was 
remedied in the autumn of 1855, when, after duly 
assaying the different coins, the Chinese Superinten- 
dent of Customs published a proclamation informing 
the people of the true state of the case, and ordering 
that after a certain date all the six different coins 
should pass current, according to their respective in- 
trinsic values, which he announced. 

Such are some of the differences of value, and 
limitations of circulation, which Opinion, or Law 
as the expression of opinion, imposes upon the 
various forms of money. But the case is wider 
than this. The States of Europe have in some re- 
spects almost become a commonwealth, but the cur- 
rency of one State will not circulate in another. The 
English sovereign, indeed, is readily taken in payment 
in most parts of the Continent ; but it does not cir- 
culate — no more than napoleons will circulate in 




England. They are strange to the people, who are 
suspicious of them, and (as foreign coins are never a 
legal tender in any country) refuse to receive them as 
money. Still more so is this the case with paper-money. 
Although the coins of one country will not circulate in 
another, gold and silver are recognised as the raw ma- 
terial of money all over Europe and America, and are 
valued accordingly ; but paper-money, out of its own 
country, in many cases carries no value at all. Bank 
of England notes, indeed, which have the same prestige 
over other kinds of paper-money which the sovereign 
has over other coins, may be cashed without difficulty 
in Paris, Vienna, and other large cities, and at no 
greater charge than is made for converting sovereigns 
or half-crowns into French money. Indeed, as neither 
sovereigns nor Bank of England notes will circulate 
abroad, and have to be sent back to England before 
the foreign holder receives value for them, the notes are 
fully more acceptable than the sovereigns, seeing that 
they can be transmitted to England for the mere cost of 
postage. Convince a Continental money-changer that 
the English bank-note is genuine, and he will give you 
cash for it as readily as for our metallic money : although, 
of course, there is this difference, that coins can be tested 
anywhere, whereas bank-notes cannot, and in foreign 
countries can only be received as genuine out of confi- 
dence in the person who presents or endorses them. 
Moreover, even in the same country there is often 




a limitation to the circulation of some kinds of mom 
The sovereign — ^though a legal tender, and (save in some 
sequestered parts of the Highlands) readily accepted 
when offered in payment — hardly circulates in Scot- 
land, — ^the Scotch preferring paper-money, as the best 
known to them, as in their opinion the more safe and 
convenient form of currency, and also as the cheapest. 
Scotch bank-notes, again, do not circulate in the other 
parts of the kingdom. In England, too, there are many 
provincial banks, the notes of each of which circulate 
readily in the district where the issuing bank is situate, 
but are looked upon with suspicion elsewhere. They 
will not circulate widely, simply because they are a 
kind of money with which the public at large are not 
familiar, and accordingly have not confidence in. 

Of all forms of money Silver is the most widely 
recognised, and therefore holds the first place in the 
currency of the world. It is the standard money of 
China, with a population of 400,000,000, and of India, 
with a population of 160,000,000. It is also recognised 
as money all over Europe and America. Indeed, until 
recent times, it was the standard money of Europe — 
the English pound and the French livre originally con- 
sisting of a certain amount of silver. To this day sil- 
ver still constitutes the greater portion of the currency 
of the Continent ; and in many of the outlying and 
half-barbarous parts of the world silver will be accepted 
where gold coins would be refused. Gold at present 



holds the second place in the currency of the world. 
But it is rising in monetary importance, owing to 
its greater portability ; and unless new silver-mines 
are found, the recent discovery of the gold-beds in 
California and Australia will, by making gold more 
abundant and more cheap, tend to wrest the suprem- 
acy from silver and give it to gold, — by inducing the 
European and American States to make all the neces- 
sary additions to the metallic portion of their currency 
in the latter metal. Next in amount of circulation to 
gold and silver money comes paper-money. In this 
country, the paper-money issued imder legal restric- 
tions by the banks amounts to about £40,000,000 
sterling (the gold and silver money, whether in circu- 
lation or kept in reserve by the banks, amounting to 
about twice as much). In France, although bank- 
ing is much less developed than in this country, the 
amount of paper-money is nearly as great as it is here. 
In Eussia and Austria it is also very large — not owing 
to banking, which in both countries is still in its in- 
fancy, but owing to an actual dearth of the precious 
metals. Paper-money has the widest range in value 
of all kinds of money. It is also the cheapest and 
most portable. One could carry twenty or thirty 
£1000 Bank of England notes in one's waistcoat 
pocket ; whereas a couple of the strongest porters 
could not even lift a bag containing such a sum 
in gold from the ground. At the same time, as is 



seen in Enssia, Austria, and America, you may have 
paper notes in circulation of as small amount as the 
smallest silver coin. The gamut of paper-money, if 
we may so speak, goes far higher than that of gold- 
money, and ranges down to the lowest reach of 
silver-money. In fact, in the form of bills of exchange 
— which, however, are not Money in the strict sense of 
the word — paper-money plays the most important part 
of all in carrying on the trade and commerce of the 
world. It may also be used as a substitute for all the 
other kinds of money — if under proper restrictions, 
with perfect safety and great economy. And in mo- 
dern times it has always been had recourse to, with 
more or less prudence and advantage, by nations who, 
in exceptional times, find themselves in a temporary 
deficiency of metallic money. 

Coming back, then, to our starting point, " What is 
Money ? " let us observe what is the one quality which 
all these kinds of money have in common, and which 
suffices to exalt each of them into a more or less widely 
recognised representative of wealth. Between gold, 
cowrie-sheUs, and paper, there is not a single point of 
resemblance. But the quality which gives to these 
and other substances their circulating power as money 
is one and the same : it is simply the agreement on 
the part of nations, or parts of nations, to recognise 
those substances, either of themselves or when pre- 
sented in certain forms, as representatives of wealth. 



It is an agreement on tlie part of communities, or of 
large sections of the population of the globe, to regard 
these substances or articles as a medium in which 
wealth can be condensed, and to make of them 
counters with which the game of life may be carried 
on, and property be transmuted at pleasure from one 
form into any other. The quality which constitutes 
Currency, therefore, is extrinsic to the material of 
which cun-ency is made, and becomes imparted to 
any articles which a nation or nations may agree to 
recognise as tokens of value. 

That paper notes or stamped leather possess no in- 
trinsic value will at once be admitted ; but, almost 
universally, it will be asserted that gold is money 
entirely because of its intrinsic value. Now — passing 
over the important fact that one-half of the civilised 
population of the globe do not attach to gold the value 
which we do — ^let us ask. How does gold acquire the 
peculiar value which we attach to it? It will be 
answered, " Owing to the great amount of labour re- 
quired for its production." But how is it that so 
costly an amount of labour is devoted to its produc- 
tion ? An article may be rare, yet valueless : it must 
be scarce before it becomes valuable. There are many 
things as difficult to find or produce as gold, which 
nevertheless are but little sought for, because for the 
finding or production of them no one will give suf- 
ficiently high wages. Before a thing can become 



valuable, there must not only be a difficulty in its 
production, but a great demand for it : because, unless 
there be a great demand for it, the price offered for it 
will be inadequate to induce men to encounter the dif- 
ficulties or undergo the hardships inseparable from its 
production. What, then, causes the great demand for 
gold ? Because so many nations require it for Currency. 
And thus the circle of reasoning comes back to our 
starting position, that the peculiar value of gold arises 
from its having been so widely adopted as Money. ^| 

Demonetise gold, and what would follow? Pro- 
bably two-thirds of all the gold in use among man- 
kind is employed as money ; and if the Western world 
were, for the sake of uniformity, to adopt the currency 
of the East, and resolve that gold should not be re- 
ceived as money any longer, would not the value of 
gold fall immensely? The moment the news reached 
California and Australia, would not the mines be 
abandoned, and the workers betake themselves to 
other occupations, — feeling of a surety that, now gold 
was demonetised, the world had already more than 
enough of the yellow dross, and that henceforth no 
man would give a dollar for a whole ounce of it. 
Silver would be immensely increased in value, and 
gold would descend from its high estate to the rank 
of an ordinary metal. Thenceforth gold would only 
be used for ornaments, plate, and gilding — if, indeed, 
the comparative abundance of the metal for those pur- 


poses, owing to its demonetisation, would not make it 
too common to be a fitting ornament of the wealthy. 
It is the value, not the beauty, of the yellow metal 
that makes it so much prized nowadays in ornaments. 
It is not merely as barbaric toys and gewgaws that 
people wear it in chains and rings and other personal 
ornaments, and load their tables with it as plate ; but 
because it is condensed wealth. It is the display of 
wealth which constitutes the chief charm of golden 
plate and ornaments ; and if gold were no longer to 
be condensed wealth, but simply a metal like the 
others, it is probable that its dethronement as money 
would tend rather to diminish than to increase the 
demand for it as an ornamental luxury. Hence the 
two causes for the present great demand for gold 
being, one of them extinguished, and the other less- 
ened, by its demonetisation, the value of gold would 
be immensely diminished 

Lloney is the expression of wealth — the voucher of 
accumulated gains — a "universal language" of pro- 
perty all over the civilised world. It is an Open Se- 
same which everywhere admits us into the enjoyment 
of other men's goods or labour. Unlike houses or 
horses or hounds, or food and clothing, or works of art, 
or articles of merchandise, money is of no use in itself 
— only as a means of getting other things. To borrow 
the language of the Schoolmen, the value of money 
is in posse — that of other articles in esse : the one is 



potential, the other is essential. Money is a useless 
thing for ever doing useful things. A valueless thing 
for ever purchasing things of value. Like the electric 
fluid, money is undynamic when at rest: it is only 
when in motion, passing in payments from one owner 
to another, that its great power is manifested. But 
that power, we repeat, is merely imputed to it, in order 
to facilitate the business of life : and if all the world 
could act together as easily as a single community can, 
we might say of every form of money, " A breath can 
make it, as a breath has made." d|j 

Money is not wealth, but a right to wealth — an 
established conventional equivalent for goods and 
labour. Apart from the command which it gives its 
possessor over the goods and labour of other men, 
money is valueless ; but the goods and labour would 
be as valuable as ever though (as was the case in 
ancient Peru) there were no money at all. Money is 
but the counters which (apart from the property held 
in other forms) show the relative position of the 
players in the great game of life. It confers no power 
or property upon one man without taking these in 
equal amount from others. Abolish all the Money in 
the world, and mankind at large would be as wealthy 
as before. All the produce of the earth and of human 
labour would exist as before. The title which ^iSKM 
certain class (the money -holders) have acquired to [ 

that produce would be extinguished, but the produce I 


would remain as abundant as formerly. Certain 
established rights would be annulled, but not a par- 
ticle of existing jDroperty. As regards paper-money, 
the effect would be the same as if a fire were to de- 
stroy a building in which were deposited all the bonds 
which certain members of a community hold over the 
property of others. "WTiat the creditors lost in wealth 
the debtors would gain. As regards gold and silver, 
indeed, these metals, when demonetised, would still re- 
remain in the possession of those who had them, but 
their value would be immensely lessened. In this 
case, the material of the counters would remain, but the 
rights which they represented would be gone. Each 
player would still have his bits of mother-of-pearl 
or metal, but the value of those articles would be as 
nothing compared to the stakes which they previously 
represented. Demonetise the precious metals, and a 
labourer would no longer give a week's work for a bit 
of gold or silver which he could do nothing with 
except to give to his wife as an ornament. Men 
would no longer consent to be paid in bits of metal 
which no grocer or butcher or tailor would accept in 
exchange for his goods. And of what benefit would 
gold be even to the foreign trader, if the metal were 
to lose its present value of being recognised as money 
over haK the world? Suppose some great man, of 
eccentric or barbaric taste, were to accumulate the 
demonetised metal, would not his golden pyramid be 



essentially as mucli a product of barbarism as the 
Pyramids of the Pharaohs, in which a maximum of 
labour is combined with a minimum of usefulness ? 
It is only as Money that gold possesses a value such 
as civilisation endorses : and the demand for gold as 
an ornament is now mainly dependent upon the high 
value which attaches to it as money. | 

Let any one fairly think out the question, and he 
cannot help coming to this conclusion. And if, in^JI 
stead of starting with gold, he start with paper-money, 
he will arrive by the other side of the circle of reason- 
ing at the same conclusion : namely, that all the 
various forms of currency depend for their peculiar 
value upon Opinion, or conventional agreement ; that 
their value is (chiefly in some cases, entirely in others) 
extrinsic, not intrinsic, — a something imparted to 
them by the consent of the people among whom they 
circulate. In short. Currency of every kind is essen- 
tially dependent upon Credit — using that word in its 
amplest sense. Negotiability, i.e. acceptability, is the 
grand point — and that depends upon a common agree- 
ment. Accordingly, the more widely the credit of 
any coin or note is recognised, the more extensive 
will be its circulation, the greater its acceptability, 
and the higher its rank as a form of money. 

These considerations, of course, render it doubtful 
whether mankind are right in the value which they 
continue to attach to the precious metals as the prime 
form of money, seeing that their place could be 


supplied by cheaper materials. We shall leave Pos- 
terity, with its superior advantages, to answer that 
question : content to believe that, in the actual cir- 
cumstances of the world, the monetary system which 
has been established could not have been very dif- 
ferent from that which exists. High as is the price 
which civilisation pays for the convenience of money, 
the investment, on the whole, has been a good and 
profitable one. The invention of Money lies at the 
base of all material civilisation. Division of labour is 
the grand characteristic of material civilisation ; but 
there could not be any great subdivision of labour 
without money. Before the industrial classes of a 
community will devote themselves each to a separate 
pursuit, a means must have been found by which 
the produce of each is made readily exchangeable for 
the goods of any of the others. Money does this. A 
man who has only an ox to barter, will find it difficult 
to supply his wants. He will find it difficult to appor- 
tion it correctly among his various tradespeople — 
grocer, baker, tailor, shoemaker, landlord, &c. — even 
supposing that all these dealers need beef at once. 
But let him first convert the ox into money, and there- 
after he can purchase all that he wants with rapidity 
and ease. Money is a reservoir of power, immediately 
available, and for any purpose. It is wealth con- 
densed and mobilised. Its effective force is as much 
superior to an equal amount of property in other 
forms, as a mobilised and concentrated army is to an 



equally numerous crowd of common men. If there 
were no money — no conventional means of storing up 
accumulated gains in an instantaneously negotiable 
form — how long would be the time, and how cumbrous 
the preparations, requisite to prepare an expedition, 
to get up a railway-company, or to accomplish any 
great project ? What would require the co-operation 
of thousands, and consequently great preliminary 
delay, in times of pure barter, can with money be 
accomplished at once. Secure the aid of a single great 
capitalist, and forthwith the streams of power flow 
in all directions simultaneously, each becoming trans- 
muted into different objects — labour, stores, imple- 
ments, raw material, or directing genius. The con- 
version of power is direct and instantaneous. By 
means of money, human power can strike its coups on 
the instant. Prove an object desirable, an enterprise 
profitable, and the man who holds his property in the 
form of money can accomplish the object or engage 
in the enterprise with the speed of the telegraph. 

But if we would see the world-wide results of the 
invention of Money in facilitating all the branches of 
human industry, and in promoting friendly intercom- 
munication between different nations and countries, 
we shall find these exhibited in their most striking 
form by the events which have accompanied and by 
the consequences which have flowed from the recent 



The first phenomenon attendant upon the gold-disco- 
veries has been the great Emigration — ^the transfer of 
large masses of population from their old 


seats to new ones, — the vast and sudden 
spread of civilised mankind over the earth, making 
deserts and waste places to bloom, cities to rise amid 
the solitude, and seas, whose virgin waters had hardly 
been stirred by a single prow, to grow white with the 
sails of golden argosies. 

The countries where these gold-beds have been 
found are in the utmost ends of the earth — regions 
the most secluded, the most isolated from the seats of 
civilisation. The region of California seemed the last 
in the world that would be peopled by civilised men. 
Of all spots on the globe, it was the furthest removed 
from the highways of enterprise. Not a road to it 



was to be found on the map of the traveller, not a 
route to it was laid down in the charts of the mariner: 
the deserts and woods and mountain-ranges by land, 
the rocks and shoals and currents by sea, were known 
to not one in a million of earth's inhabitants. The 
Pacific Ocean rolled between it and Asia ; the snow- 
capped chain of the Rocky Mountains, impassable 
save in a few places, and only at certain seasons — the 
deserts of the Salt Lake, and the pathless wastes of 
the prairies, traversed by hostile tribes of Indians — cut 
it off from communication with the eastern States of 
America. In this secluded region, extending some 
five hundred miles along the shores of the Pacific, 
and sloping from the margin of the sea to the 
summit of the Snowy Eange, a few stragglers were 
the only signs of human life that appeared amid a 
primeval solitude. Six years before, when the French 
frigate Venus (in the course of its voyage round the 
world) put into the port of Monterey, then the chief 
town of California, they found the place " composed 
of forty or fifty whitewashed habitations — veritable 
huts, roofed only with rushes and boughs of trees. 
The frigate was in want of biscuit, and the country 
had to be laid under contribution ; they went even 
to distant farms in search of flour, and, after all, could 
only procure an imperfect revictualment." * All at 
once gold was discovered — gold in abundance, gold 

* Revue des Deux Mondes, 1843. 


everywhere. In the beds of the rivers, in the sands 
of the hill-torrents, in the seams of the rocks, the 
precious ore appeared — nay, the very soil seemed im- 
pregnated with the glittering dust ; and forthwith set- 
tlers came hurtling thither like clouds of locusts. 
Every wind of heaven seemed to blow them to the 
golden land. The love of gold soon peopled the 
solitude ; the sparkle of the precious ore drew myriads 
from afar. Within eighteen months a hundred thou- 
sand men arrived from the other side of America ; 
nine thousand waggons, bearing five times that num- 
ber of persons, came through the passes of the Eocky 
Mountains, and four thousand immigrants came on 
horseback by the same route. Crowds poured in 
eager haste across the Isthmus of Panama, converting 
the neck of the New World, for the first time, into a 
highway between the two great oceans of the globe. 
Others made a sea voyage of 17,000 miles round 
Cape Horn, intrusting themselves for the stormy pas- 
sage to leaky and shattered barks, resembling that in 
which Columbus made his last voyage from America 
to Spain. From the ships, they beheld a land without 
fruits, without cities, almost without inhabitants ; but 
gold was in the mountains that rose in the distance ; 
and, heedless of hunger and thirst, heat and cold, 
raiment and lodging, they plunged eagerly into soli- 
tudes where the wolf and the buffalo, the squirrel and 
the bear, had lived undisturbed since the Deluge. 



What an assemblage was there gathered together ! 
Men from all quarters of the globe — of every kindred 
and tongue, of every hue and dress and feature. 
Emigrants from every country of Europe — English, 
German, Swiss, Pole, French, Spaniard — worked side 
by side with the aboriginal Indians and Anglo-Saxon 
intruders of northern America, and with the native 
Chilians and half-breeds of its southern portion. The 
Australian joined them from his Antarctic continent ; 
the Malay and Polynesian from the isles of the Pacific ; 
and even the Chinaman came forth, like an anchorite 
from his cell, to join in this varied mass of golden 
speculators. Such a concourse of human tribes the 
world never before witnessed. Through the once 
solitary channel of the Golden Gate, clusters of sails 
began to enter the land-locked bay, on whose shores 
was rising the future capital of the region ; and, like 
the magic seed of the Indian juggler, which grows, 
blossoms, and bears fruit while the spectators are 
looking on, San Francisco seemed to accomplish in a 
day the growth of half a century. 

Australia was, if possible, a still more isolated 
quarter of the globe, and, if no new attraction had 
come into play, it would have remained for gene- 
rations a slow-moving cityless country of pastoral 
settlers. But the attraction of gold rapidly changed 
the scene, and has opened a brilliant future for 
that vast island-continent, of whose glories we only 



see the beginning. Already the European race is 
making a new world for itself at the Antipodes. 

Nor do the triumphs of gold, as an agent affecting 
the destinies of the world, stop here. Hardly noticed 
as yet, but certain to attract another rush of emigration 
in the future, is the auriferous region of Siberia, which 
Humboldt affirmed to stretch right across northern 
Asia, from the Ural Mountains to Kamtschatka and 
the bleak solitudes of " Oonalaska's shore." Here 
again is one of the vast solitudes of the earth ; yet, 
ere many years have passed, we shall see the wizard 
Gold drawing all men after him, peopling with civil- 
ised men the heart of Upper Asia, — establishing cities 
and peaceful communities where once roamed the 
ruthless cavalry of the Golden Horde, — and bringing 
back mankind, after long and devious wanderings, to 
settle in maturity in the region that was the cradle 
of our race. The corresponding region of the New 
World — the American Siberia — the desolate zone 
which intervenes like an unbridged chasm between 
Canada and British Columbia, already begins to be 
affected from a similar cause ; and the discovery of 
gold on the eastern side of the Eocky Mountains, on 
the head- waters of the Saskatchewan river, will mightily 
contribute to people that solitude also, and to extend 
British settlements in unbroken line from the Atlantic 
to the Pacific. Lastly, but not less surely, the passion 
for gold will, at no distant time, carry bands of adven- 




turers into the heart of Africa, that greatest waste place 
of the earth. If famous in old tiQies as " the fierce 
mother of lions," she was not less famous as a gold 
country ; and we believe that the auri sacra fames will 
be the first agency that will give a great impulse to the 
invasion of that continent by the European race — lead- 
ing bands of daring adventurers up the watery high- 
ways of the Nile and the Niger, to search for gold- 
beds beneath the Equator, and pitch their tents at the 
foot of the shadowless Mountains of the Moon. 

Such is the mighty influence which gold is exert- 
ing upon the condition of the Earth. Let us now 
INCREASE OF ^^^^ thc chaiu of effects, and the nature 
COMMERCE. Qf those effects, which the gold-discoveries 
are producing upon the condition of Mankind. The 
demand for gold, as the prime material of money, is 
so great that the wages of the gold-diggers in Cali- 
fornia and Australia are, on the average, four times 
greater than the class of skilled workmen can make 
at home. In consequence they spend four times as 
much. In other words, for every £1 of goods which 
they consumed at home, they now consume £4. Their 
consuming power has been quadrupled, and the result 
is, that they give four times as much employment to 
other men. Hence, not only are those emigrants bene- 
fited by the gold-diggings, but the population which 
they have left at home is likewise benefited. Not 
only is the labour-market at home thinned, but there 


is more employment than before. The profits of the 
gold-diggers keep more ships on the sea, and give 
more employment to the producers alike of the luxu- 
ries and of the necessaries of life. Nor is this all. 
For not only is a new and lucrative trade created 
between the gold-countries and the old seats of civili- 
sation, but commerce in all directions obtains a mighty 
impulse, increasing the area of Employment, and the 
comforts of mankind all over the world. Extended 
commerce means more profits for our merchants and 
manufacturers, more employment for our working- 
classes, and a general bettering of the condition of 
our population and of the population of every country 
which comes within the sphere of these operations. 
It also means increased intercommunication among 
the nations of the earth ; and by establishing among 
them a mutual knowledge and bonds of common in- 
terest, it prepares the way for the coming of better 
times upon the earth — morally not less than materi- 
ally — than mankind has yet known. 

I^ext in point of time, then, to their effects upon 
Emigration, and first in point of importance, the pecu- 
liar benefit arising to the world from the gold-discov- 
eries is that they have given a great extension to 
Commerce. California and Australia, instead of desert 
places, have become countries which trade largely; 
and at the same time the produce of their mines 
enables us greatly to extend our commerce with other 



countries, such as India and China, which as yet take 
little of our goods, and with which no great trade is 
possible unless we have an abundance of the precious 
metals in which to discharge our trade balances. The 
principle of exchange is simply this, that goods which 
bring a trifle more in other countries than at home are 
sent thither. An increased trade with France, for 
example, means that we import more of her wines 
and silks, and send her more of our iron and cotton 
goods. An increased trade with India or China 
means that we import a larger portion of their pro- 
duce, either in the form of food or luxuries or as 
raw material for our manufactures, and that we send 
in return a considerable portion of our manufactured 
goods and a large portion of the precious metals. In 
short, the primary benefit which commerce confers 
upon mankind is, that each country gets a portion of 
its produce exchanged for other commodities of which 
it has a greater need. Commerce adds to the comforts 
of life, and also it gives to each country new means 
of developing its industry. It is a branch of in- 
dustry by itself : every extension of commerce implies 
a corresponding increase of employment. And an 
increase of employment is equivalent, (1) to a better- 
ing of the condition of all the industrious classes ; 
and (2) to a draft upon the mass of idleness and 
pauperism, or unproductive energy, which every com- 
munity contains. No other branch of industry could 


have produced these effects to the same extent as that 
opened up by the discovery of the gold-mines. It is 
evident from what has taken place that gold is more 
needed by the world at large — it has a wider and 
better market — than any other produce ; hence, the 
labour of the emigrants has been more profitably em- 
ployed in the gold-countries than it would have been 
at home. The difference is in effect the same as if a 
good soil had suddenly taken the place of a bad one. 
Moreover, the novelty and profitableness of the trade 
of gold- seeking tempted not a few idle hands to emi- 
grate and become busy; and the drafting away of 
many myriads of industrious hands from the labour- 
market at home likewise acted as a means of securing 
employment for men who, but for this opening, might 
have remained a burden upon the community. 

These are happy effects of the gold-discoveries. 
And they are political as well as social. When na- 
EDROPE tions are prosperous, they are contented. 
RELIEVED. Suffering is the great parent of revolution. 
Seldom, if ever, has a country been convulsed by 
political revolution, save when the outbreak had been 
preceded by a period of general distress. The distress, 
so widespread and apparently mysterious, which over- 
spread our own country for twenty years before the 
passing of the Eeform Bill, as well as for several years 
afterwards, was the agency which gave to that long 
crisis its exasperation and serious political perils ; 



and (if this were the place for such a discussion) it 
could be shown that the most potent cause of that 
widespread distress was the continuously increasing- 
scarcity of gold, in consequence of the great decrease 
in the produce of the American mines. Now, happily, 
the position is reversed. Gold is abundant, wages 
are rising, employment has increased, and the people 
are contented. Nor is this benefit confined to our 
own country. All Europe feels the happy change. 
Look at the state cf Europe in 1820, 1830, and 1848, 
and in a lesser degree in the intervals of troubled 
peace which lay between those crises of discontent ; 
and say whether the last twelve years, in regard to 
political contentment, do not appear to belong to a 
wholly different epoch. The social discontent, the 
bitter war of classes, has almost disappeared. The 
old seats of civilisation, which appeared to be sinking 
under the weight of over-population, were suddenly 
thinned of their swarms ; room was made for a new 
growth of population, and that new increase is growing 
up under circumstances of unexampled prosperity. 
France under a military despotism has benefited in 
this respect (considering the lesser action of the gold- 
discoveries upon her) as much as England under free- 
dom and free-trade. Let neither Government boast 
itself overmuch, by attributing to mere legislative 
measures a happy result, in which future ages will 
see clearly the hand of overruling Providence. We 


are proud of our country and of our statesmen and of 
our Queen; but for the height of this great blessing 
let us give God the glory. 

The remarkable increase which has of late years 
taken place in the commerce of the world is generally 
attributed to the adoption of the principles of free- 
trade in this country, and to the relaxation of tariffs 
which is slowly taking place abroad. Unquestionably 
there is truth in this view; but it is very far from 
being the whole truth. Every great movement of 
mankind is due to a concurrence of influences, rather 
than to a single one. Whatever may have been the 
initial cause of the great increase of international 
trade during the last fifteen years, it is important to 
observe that the commencement of the increase was 
contemporaneous with the discovery of the Californian 
gold-mines. That discovery at once, and even before 
its material effects began to operate, gave a moral 
impetus, an impulse of excitement and hope, to the 
trading world. And it is abundantly evident that the 
great expansion of trade which has since occurred 
could not possibly have taken place if the new gold- 
mines had not been discovered. 

The most prominent feature of that expansion has 
been the increase of trade between Europe and Ame- 
TRADE WITH ^^^^ ^^ ^^^ ^^® liaud, aud the East on the 
THE EAST. other. That trade has in all ages been a 
peculiar one. The constant absorption of the precious 



metals by the East has attracted attention, and given" 
rise to much speculation, for at least a century and 
a half. The explanation is, that India and China 
have been non-importing countries. And to this 
day the exports from these countries are largely in 
excess of their imports. We yearly consume a large 
portion of their produce, while they take comparatively 
little of our goods. Such a trade can only be carried 
on when Evirope possesses an abundant supply of the 
precious metals ; and the trade could never have been 
carried on to the extent which has been witnessed of 
late years, if the new gold-mines had not rendered 
the precious metals in Europe not only abundant, but 
superabundant. In 1851, after free-trade had been 
for several years established in this country, and when 
the produce of the Calif ornian gold-mines had just 
begun to operate, the exports of silver to the East 
from Great Britain and the Mediterranean ports only 
amounted to £1,716,000. iBut from that time our 
trade with, and investments in, the East increased 
rapidly, and the amount which Europe had to pay in 
the precious metals underwent a corresponding in- 
crease. So much so, that in the thirteen years which 
have since elapsed, the payments which have been 
made to the East in the precious metals have amount- 
ed to about £130,000,000, showing an average of 
£10,000,000 a-year. But for the new gold-mines such 
payments on our part would have been impossible; 


yet without sucli payments our Eastern trade and in- 
vestments could not have been carried on. Before the 
gold-discoveries came to our aid, to have attempted to 
export even half the present average amount of bullion 
to the East would have so tightened the money market 
(in other words, would have so reduced the amount of 
loanable money) as speedily to stop the trade. The 
rate of discount would have risen to such a height as 
to leave no adequate margin of profits on the articles 
exported : indeed, we should have been fortunate if our 
whole trade had not been involved in the calamities of 
a monetary crisis. 

In present circumstances, on the contrary, this 
drain of bullion is of itself an advantage. Our in- 
IT8 HAPPY crease of trade with the East, while adding 
RESDLTs. ^Q Q^j. "vvealth, is relieving Europe of a por- 
tion of the precious metals of which we have no 
need, and which it is advantageous to get rid of. 
Had all this bullion remained in Europe, the value of 
gold would have already fallen greatly : in conse- 
quence, the mines would be less resorted to, emigra- 
tion would be already declining, the expansion of com- 
merce and increase of employment would be checked, 
and the prosperity of the Golden Age — instead of con- 
tinuing, as we trust, for several generations — would 
be all over in a few years. The prosperity of the 
world depends upon the continuance of this drain of 
bullion to the East. Without it, the effect of the gold- 



discoveries would be but local and evanescent ; witli 
it, the whole world will be partakers of the blessing. 
If this drain continues, the Golden Age may last for a 
hundred years ; and, as the result of the ever- widening 
commerce, all nations both of East and West will be 
drawn together in bonds of mutual interest and sym- 
pathy, which will remain as a happy legacy after the 
Angel of Gold has again withdrawn from the scene. dH 

Such are the effects upon the world at large which 
the new gold-mines are producing, and are calculated 
to produce. They constitute the most powerful lever 
by the action of which the world can be moved, human 
progress hastened, and human prosperity increased. 11 

Let us now consider these gold-discoveries in an- 
other and narrower aspect. Let us ask, as a question 
MONETARY of purcly mouctary science, what good do 
QUESTION, ^^g derive from the new mines? It is 
obvious that an addition to the currency of a coun- 
try is not necessarily a benefit. If the country be 
already adequately supplied with money, every addition 
is a positive loss. If the currency of a country be 
increased from £50,000,000 to £100,000,000, while the 
productions of that country and the demand for money 
remain as they were, the hundred millions will do no 
more than the fifty millions, — only, all prices, wages, 
rents, &c., will be doubled in amount. The prices 
which a farmer or manufacturer gets for his goods wiU 
be increased ; but so also, and in similar proportion, 


will be the amount of his outlay in rents and taxes, 
&c. It is like adding equally to both sides of an 
equation. It would be a sheer waste of money. The 
labour which produced these extra fifty millions would 
be as much lost as if that amount of gold had been 
sunk in the sea. A case like this, however, never 
occurs in the actual world. It would only be possible 
if the country in question were absolutely isolated 
from the rest of the world, — and hardly even then : 
for the mere influ_x of increased supplies of gold is 
found to give an impulse of hopefulness and energy 
which of itself tends to create more trade, and conse- 
quently more need for money. 

Any sudden derangement of prices, whether caused 
by a rise or by a fall in the value of the precious 
metals, is bad ; for it involves a transference of wealth 
from one section of the community to another, without 
any fault on the one side or merit on the other. A 
farmer, for example, who has taken his farm on a 
twenty years' lease, at a time when the ordinary price 
of wheat is 60s. a quarter, would lose greatly if prices 
(owing to a change in the value of money) were sud- 
denly to fall to 40s., and would gain greatly if they ' 
were to rise to 80s. ; w^hile the landlord would equally 
gain in the first event, and lose in the second. True, 
there would be no loss to the community at large; 
what one man lost another would gain : but it would 
be a taking from those who rightfully had, and giving 



to those who had no claim to get. Moreover, it ge 
rally happens (on the principle of "lightly come, 
lightly go") that those who get money in such a way 
squander it, or at least do not turn it to so good 
account as those to whom it belonged. ^ 

So far as experience goes, however, it is doubtful 
whether any great change of value ever can take place 
suddenly. It is as gradual operations that these alter- 
ations in the value of money fall to be regarded and 
discussed; and this limitation at once strips such 
movements of their necessarily injurious character. 
Nevertheless such movements exercise a mighty in- 
fluence upon the fortunes of States, or of mankind at 
large ; and their social effects vary immensely accord- 
ing as they are produced by a Else in the value of the 
precious metals, or by a Fall. 

During the last eighteen hundred years we have 
had experience of monetary changes of both kinds. 
For fifteen centuries after the Christian 
era, the precious metals became gradu- 
ally more scarce ; chiefly, doubtless, owing to the 
widening area of civilisation, and the consequent 
increase of trade. In the sixteenth century, a mighty 
change took place, owing to the enormous amount 
of the precious metals obtained by ruthless conquest 
in the New World, and by the discovery and 
working of the gold and silver mines in Peru and 
Mexico. All Europe was then astir with excite- 



ment : the epoch was one of unparalleled enthusi- 
asm and enterprise ; and in a single generation com- 
merce experienced an expansion greater than had been 
accomplished during the previous ten centuries. By- 
and-by, however, as population and trade increased, 
the opposite tendency again commenced. The pendu- 
lum, whose operation is so visible in human affairs, 
began to swing backwards. A season of ebb ensued. 
Money gradually became scarce, and, despite the alle- 
viation caused by the invention of banking and paper- 
money, hard times set in. After 1809, the annual 
supply of the precious metals declined fully one-half, 
owing to the stoppage of the Mexican mines, conse- 
quent upon the war between Spain and her American 
colonies. The period when the precious metals was 
most scarce was between 1810 and 1840 ; and this, as 
every one knows, was precisely the period when na- 
tional distress and political agitation were most rife 
amongst us. The masses suffered, and clamoured for 
Eeform ; the middle classes groaned under the taxa- 
tion, and cried for Eetrenchment ; and in Parliament 
there arose the policy of Peace, to lessen the burdens 
of a nation which could not afford to go to war. The 
discovery of the Ural mines of Eussia thereafter began 
to mitigate, though not to remove, the dearth. But 
now, once more, a change has taken place; and the 
discovery of the rich mines of California, Columbia, 
and Australia, together with (let us hope) the impend- 



ing regeneration of Mexico, has commenced a period 
when money will again become not only plentiful but 
redundant. ^|| 

It is important to note the social effects which take 
place during these different epochs. ^| 

In times like the present, when the value of the 
precious metals is falling, the effect of the change is 
RISE OF (speaking roughly) to benefit the many at 
PRICES. ii^Q expense of the few. Mortgages and aU 
money-contracts which extend over a long period, are 
lessened in value ; for in the course of twenty years, 
£1000 may become worth no more than (say) £800 
was at first. Such creditors, who are necessarily 
capitalists or wealthy men, lose, and their debtors 
gain. But it is on the Government expenditure of a 
country that the change is most felt. The pressure of 
the Government debt is lightened, and the taxation 
necessary to provide for it is virtually reduced. The 
same amount of taxation may be raised, but that 
amount represents a much smaller value than before, 
and accordingly is less felt by the people. A large 
portion of the Government expenditure in all countries, 
including Government salaries and the interest on 
the Debt, are fixed payments — money-contracts which 
extend over a considerable period; and as these de- 
cline in value, the national burdens are lightened 
in this way also. Such effects, of course, are mainly 
confined to the actual period of transition. Govern- 


ment salaries will be gradually raised, and other 
measures will be taken to meet the altered circum- 
stances. But still, as long as prices continue to 
rise, fixed payments, money-contracts, and annuities 
will tend to decline in value. What is most impor- 
tant of all. Trade increases with the increased facili- 
ties for carrying it on which an abundance of the 
precious metals affords ; and with more trade there is 
more employment, and consequently increased pros- 
perity among the working classes. Nor among these 
only: for even annuitants, and others who derive a 
portion of their income from fixed payments, benefit 
likewise — as regards themselves, and still more as 
regards their families — from the increasing abundance 
of employment ; so much so that in most cases this 
cause will actually compensate them for the loss which 
they experience on the fixed portion of their income. 

On the other hand, in periods when the precious 
metals are becoming scarce — in other words, when 
PALL OP *^® value of money is rising — the mass of 
PRICES. ii^Q community suffer severely. Trade, if 
not checked, is conducted under greater difiiculties. 
Mortgages, long leaseholds, and money-contracts of 
all kinds, weigh more heavily upon those whom they 
affect ; and the pressure of taxation — ^though no more 
taxes be raised than before — is seriously augmented. 
It was this pressure of Government taxation which 
wrought such havoc in Italy and some other provinces 



of the Eoman empire under some of the emperors. 
The value of money was rising, yet the Imperial eii||| 
penditure could not be reduced so as to comport with 
the altered state of affairs ; and towns and provinces 
were called upon to pay their old amount of taxation, 
although the value of that amount had largely in- 
creased. Under the pressure of this taxation whole 
districts became depopulated, and large masses of the 
population became pauperised. Periods when the 
precious metals are becoming scarce are always times 
of more or less national distress and discontent.* 
This, as we have said, was notably the case in our 
own country in the period between 1810 and 1830, 
though the cause was never suspected. Had the 
real source of the national distress been perceived, 
there would doubtless have been more moderation and 
discretion on the part of the people, and the crisis 
would certainly have been met by wiser measures on 
the part of the Government. 

Now, the first effect of the recent gold-discoveries 
was to save us, and Europe at large, from the hard 
times which had been in operation, and which, but 
for these discoveries, must have gone on increasing in 

* In a partial degree, this is sometimes the case also when 
prices are rising : "strikes" being necessary in some cases to ob- 
tain a corresponding rise of wages. Still, in good times, masters 
are seldom reluctant to do justice to their workmen. And a strike 
in bad times is a much more serious affair than such a conflict in 
times of prosperity. 


severity. The recent enormous expansion of trade, 
indeed, could never have taken place at all, if the new 
mines had not come into play ; but even the ordinary 
increase of population and trade would soon have made 
money so scarce as to land the working- classes in this 
country, as well as in the States of the Continent, in 
profound distress, productive, it is to be feared, of wide- 
spread political discontent. 

These benefits — alike the negative and the posi- 
tive — arising from the gold -discoveries, are so mani- 
ARE PRicFs ^^^^ *^^^ ^^ reasonable man can call them 
RISING? jjj question. It is considered doubtful 
by some authorities, whether the new gold-supplies 
have as yet produced any alteration in the value of 
money, as indicated by a rise of prices. For our own 
part, we entertain no doubt that this change of value, 
though slight, is perceptible, and that the effects con- 
sequent upon such a change are already in opera- 
tion. Whether the value of money in this country 
has been depreciated to the extent of ten or fifteen 
per cent, as Mr Jevons maintains, we cannot assert 
with much confidence in the correctness of our opinion. 
But a change is certainly taking place ; and it is all 
the better for us that the change is slow and gradual. 
At present we are experiencing all the advantages of 
an increase of the precious metals, with a minimum 
of disadvantages — in fact, with no perceptible draw- 
back at all. In the fullest sense of the word, we may 




be said to be enjoying a rise of prices : the rise is so 
gentle, and the benefits of the new gold-supplies so 
widespread and substantial. 

Our fears have been disappointed, and our best 
hopes have been more than realised. A sudden 
THE WASTE- chaugo, ovcu in a good direction, is an evil 

PIPE. jjj monetary affairs. And such a change 
was fully expected and predicted by some of the 
best authorities in those matters. The circumstance 
which has falsified those predictions is of itself one of 
the happiest features of the times. The great increase 
of commerce which has taken place was not foreseen, 
nor its consequences calculated ; yet it is to that in- 
crease that we owe our escape from a sudden change 
in the value of money. That increase has not only 
created more employment for money in Europe, but it 
has drained off the surplus of precious metals in pay- 
ment of the large sums which necessarily accumulate 
against us in the course of extended dealings with 
the East. These payments, it is true, could not be 
made in gold — what the East wants, and will alone 
accept, is silver: but silver in sufficient amount was 
easily procured in Europe (especially from the cur- 
rency of France), and its place was supplied by gold, 
of which we were obtaining such large supplies, and 
which is the superior metal of the two for coinage. 
As gold flows into Europe, silver flows out ; and thus 
our increased commerce with the East proves to us a 



double blessing, — at once increasing employment, and 
averting any great change in tbe value of money. It 
is a waste-pipe by which nothing is wasted. It is a 
channel by which we not only rid ourselves of a sur- 
plus of the precious metals, but turn them to most 
profitable account. 

All present indications, therefore, are against the 
supposition that there will be any sudden fall in the 
THE GOLDEN "^^l^^ of gold. Dcmaud treads closely 
^^^' upon the heels of supply — indeed, seems 
actually to keep pace with it. Apart from increase of 
population, which is facilitated by the means of emi- 
gration, there never was a time when the circumstances 
of mankind were so favourable for an increase in the 
demand for currency. We stand on the threshold, 
indeed we have already entered the vestibule, of an 
epoch when commerce and international relations will 
obtain an expansion undreamt of before. During the 
last thirty years, steam-navigation, railways, and tele- 
graphs have given to mankind facilities of locomotion 
and communication which have immensely extended 
the sphere of human action, and have made each man 
a denizen of the world rather than merely of his own 
country. And now Gold comes to give wings to those 
inventions, and to carry them, and commerce along 
with them, into every civilised region of the earth. 
The flood of the precious metals which came across 
the Atlantic in the sixteenth century was poured only 



into Europe — or, rather, merely into part of EurojDe — 
into Spain, France, England, Italy, and part of Ger- 
many. But now the flood pours into every part of 
Europe and of America, and the surplus flows off 
rapidly to the other regions of the globe. 

Not even yet has gold the whole world for a 
market. A large portion of mankind still remain 
in a state of barbarism which dispenses with the 
money required for international trade. And if we 
restrict our view merely to India and China, we find 
in the vast population of those countries, numbering 
nearly six hundred millions, a field for the absorp- 
tion of the precious metals greater than all Europe 
presented in the sixteenth century. "With India we 
may almost say that we had no commerce at all, till 
the new gold-mines gave us the means of prosecuting 
that commerce in earnest ; and with the far vaster 
population of China our commerce is only in its in- 
fancy. We have been making railways in India, and 
we shall make many more ; and every such enterprise 
sends the cost of it, in the form of specie, out of Europe 
to the scene of operations. Tea-planting, also, and 
many other kinds of investment opened to Europeans 
by the recent Act for the sale of waste lands, are 
attracting capital from this country to our empire in 
the East. And our native fellow-subjects in India, 
stimulated by the increase of employment, and by the 
contagion of English spirit and ideas, wiU soon follow 



in our path, and by their increased energy and trade 
will cause an increased absorption of the precious 
metals to supply their deficiency of currency. In 
China the field is still vaster : in sober truth, it would 
require the imagination of a poet to do justice to the 
triumphs which there await civilisation. Amongst 
the Chinese, as much as amongst any nation in the 
world, the people are industrious, and every man is 
anxious to better his condition. Every man in those 
four hundred million souls has an eye to business, a 
love for trade ; they but wait for the quickening touch 
of European energy and science to enter upon a new 
career of livelier and more expansive action. Before 
long, ere ten years are over, the ships of the West will 
be whitening with their sails or darkening with their 
smoke the broad stream of the Yangtse-kiang, the 
noblest river-highway in the world, and the great 
artery of China; and from its banks the commerce 
and money of Europe will penetrate into the heart of 
the Celestial Empire. At present, metallic money is 
very scarce in China — so much so that the opium- 
trade was opposed by the Imperial Government chiefly 
on account of the export of silver which it occasioned. 
Domestic trade in that vast empire is shackled by the 
cumbrous process of barter ; and foreign trade on an 
extensive scale is impossible till the nation has pro- 
vided itself with a larger stock of the precious metals. 
Australia, also, has to be provided with railways. 



spanning the island-continent from Melbourne and 
Sydney to the Gulf of Carpentaria ; and South America 
is still an undeveloped continent. 

Or, turning from those wide fields for the absorption 
of the precious metals as money, and looking only at our 
own Continent, do we not find even here a growth of 
civilisation which will require no small amount of 
metallic currency to aid its development ? Even in 
Germany, to this day, payments in kind are in use to a 
considerable extent. Austria, with her vast undeveloped 
resources, is very deficient in the sinews of trade. And 
the whole of Eussia, with her sixty millions of people, 
is virtually an undeveloped region. All these countries 
have yet to provide themselves with an adequate 
metallic currency ; and even in the most advanced 
countries, such as England and France, the increase of 
trade and employment will continue to absorb some of 
the new supplies of gold without any serious decline 
being produced in the value of money. 

We attach importance to these considerations as 
indicating that no great and sudden fall in the value 
of money is to be expected. But that a fall will come, 
steadily and surely, we firmly believe. Let it but be 
gradual and slow, and no well-wisher to humanity, and 
to the masses of our own people, will have reason to 
complain. We cannot expect to have the stimulus of 
the gold-discoveries, and the great facilities which they 
supply for an expansion of commerce, without experi- 


encing an alteration in tlie value of money. A rise in 
the value of money crushes the many to the benefit of 
the few — and, speaking generally, the non-producers 
at the expense of the producing classes. A fall in the 
value of money does the reverse : and now the bees 
are benefiting at the expense of the drones. The more 
slow and unfelt the change, the better. In truth, if 
a fall in the value of money be spread over a long 
period, the loss is little felt by any particular owner 
of money. Government stock, railway debentures, and 
suchlike investments, are constantly changing hands ; 
and if their fall in value be gradual, the loss of each 
holder of them is merely fractional. Leases, in like 
manner, are being constantly renewed. And unless 
the change in the value of gold prove much more 
rapid than there is at present any reason to expect, 
the hardships which the change will inflict on money- 
holders will hardly be appreciable, — especially since, 
as we have said, they will share like the rest of the 
community in the advantages arising from new or 
enlarged fields of employment. As a national con- 
cern, and as afiecting the world at large, the new gold- 
supplies cannot but be regarded as a great benefit. 
By producing increased trade and employment, they 
are improving the condition of the masses of the pop- 
ulation in every country which they affect; and by 
breaking down the barriers of isolation, and drawing 
all nations into mutual relationship, they are elevat- 



ing the condition of mankind at large, and speeding 
the progress of civilisation in every quarter of the 
globe. dHI 

One interesting point remains to be noticed with 
respect to the extraordinary supplies of gold which are 
GOLD AND ^ow pouring into the world ; and that is, 
SILVER. ^Yie small effect which is thereby produced 
in the value of gold in relation to silver. This will 
always be the case as long as both of these metals 
are alike employed as Money. During the three 
centuries and a half subsequent to the discovery of 
the New World, the addition to the stock of silver 
was four times greater than the addition made to the 
stock of gold : nevertheless silver, during that period, 
diminished in relative value only one-fifth. In 1500 
the value of gold in relation to silver was as 12J to 
1,— in 1848 it stood at 15 to 1. After 1848 the 
tide turned : the supply of gold became in excess of 
that of silver — it is at present three times greater; 
but the change produced thereby in the value of silver 
is almost imperceptible. Silver is only 2 or 3 per cent 
dearer than it used to be in relation to gold. It has 
only been affected to the extent of 1 -40th — while Money 
(we think) has been aflfected to the extent of 1-1 0th of 
its previous value. 

In truth, an addition to the quantity of gold, or of 
silver, does not so much affect the relative value of these 
metals as the value of gold and silver taken together. In 


the case of two commodities which are employed or avail- 
able for similar purposes, and either of which may be 
substituted for the other, it is obvious that an increase 
in the quantity of one will affect the value of both. 
An unusually large crop of wheat will lower the price 
of all the other cereals ; and, in a lesser degree, an 
abundance of cotton will lower the price of flax and 
wool. Moreover, an abundance of wheat will lower the 
price of wheat to a lesser extent than an abundance of 
barley will lower the price of barley : because wheat 
is more prized for food and other purposes. In like 
manner an abundance of gold will depreciate the value 
of gold to a lesser degree than an abundance of silver 
will depreciate the value of silver : because gold is the 
superior metal for currency and for ornaments. Hence, 
since a fourfold excess in the supply of silver only 
lessened its value in relation to gold to the extent of 
one-fifth, it may be inferred that a still smaller change 
would be effected in the value of gold if a similar ex- 
cess were to take place in the supply of that metal. 
It is not unlikely, however, that the world's supply of 
silver will ere long be largely increased — ^by an ex- 
tended working of the Mexican mines, and by the ex- 
ploration and mining of the immense silver-bearing 
regions of the Andes. In this case the balance be- 
tween gold and silver would be fuUy maintained. 

In any case, no change can take place in the relative 
value of gold and silver such as to produce injury 



to the community. In countries where a double stan- 
dard exists — in other words, where both gold and 
silver are equally money — any depreciation of the one 
metal, or (which is the same thing) any appreciation 
of the other, will only be sufficient to create a prefer- 
ence, on the part of bullion-dealers, to export the one 
metal rather than the other. Wlien one of the precious 
metals is rising in value, and is tending to become 
more valuable as bullion than as coin, then, of course, 
when a man has to export bullion, he prefers to do so 
in this metal. But in reality such operations do not 
yield a profit, in a monetary sense. It is only on per- 
fectly new coins, and frequently not even on them, 
that an agio is obtainable, during the periods when the 
relative value of gold and silver is altering. The pro- 
fit, in short, on such operations is only sufficient to 
give the dealer a ^preference for exporting the one metal 
rather than the other. And then, each successive ex- 
port of this rising metal — say silver — by reducing the 
currency of the country from which it is exported, 
raises the value of that currency, — so that people can- 
not afford to part with either of its elements, whether 
gold or silver ; while at the same time the exports of 
silver lessen the special demand for that metal by sup- 
plying it. Like water in a cistern, every excess of gold 
or of silver poured into a currency immediately occa- 
sions an overflow, so that the level is preserved. Hence 
silver, although ever tending for the last dozen vears to- 



wards a rise in value compared with gold, has not estab- 
lished it to any degree appreciable by the community. 
It appears evident, then, that the formidable ob- 
jections which theorists make to the existence of a 
THE DOUBLE doublc Standard of value in a country, are 
STANDARD. uusupportcd by facts. They conjure up a 
vision of " hydras, gorgons, and chimeras dire," for 
which we feel no apprehension. If a country has 
enough of gold, or of silver, to make its coinage en- 
tirely of that metal, good and well. But if not — as is 
the case in India — by all means let it employ both 
metals. The correctness of this opinion is abundantly 
shown in the case of France. In that most logical 
of countries, the double standard has long been estab- 
lished, and no one there has any desire to abolish it. 
During the last dozen years, this double standard has 
been subjected to the severest test that could be ap- 
plied, and yet every one is satisfied with its working. 
Gold is pouring in, silver is pouring out — a revolution 
is being effected in the currency of France, — yet no 
one complains. Evidently, practical or appreciable 
disadvantage of any kind is quite unknown. Theoret- 
ically, as we have shown, a double standard cannot do 
much harm ; practically, we find, it does none at all. 
And since it works under the most trying circumstances 
without the least injury in France, it may safely be 
introduced without any apprehension, and with great 
advantage, into India. 



There is also a political consequence of the goia-ais- 
coveries which is deserving of especial notice. These 
nature's RE- gold -discoveries will of themselves pro- 

rORM BILL. J , • X* i.1 n 1 • 

duce an extension or the iranchise, on an 
important scale. If, as we believe, a rise of prices 
is in progress — producing alike a rise of wages and 
an increase of house-rents — it is easy to see that this 
change will elevate a new class into the possession of 
the franchise. Houses which were rented at £8 in 
1848, as a general rule are now rented at £10, which 
secures the franchise for the occupiers; and this rise 
of rents, we believe, will steadily progress. Indeed, in 
an old and rich country like ours, where population, 
trade, and wealth are steadily increasing, there is a 
tendency even in ordinary times for rents to advance, 
— ^producing, of course, a corresponding extension of 
the franchise. Taking the case of England, in the 
nineteen years before the new gold-supplies came into 
play, we find (from Dod's Electoral Facts) that be- 
tween 1832 and 1851 the registered electors for burghs 
increased one-half, and those for counties more than 
one-third, while the total population increased less 
than one-third. The figures stand thus : — 

Total registered electors, 
Total population, 





These figures show that in England, in the nineteen 
years subsequent to the Eeform Bill, the electors in- 



creased in numbers one-sixth faster than the population. 
The case of Ireland, owing to the great social and politi- 
cal changes which took place in that country in the 
same period, is valueless : nevertheless, as a matter of 
fact, we may state that between 1832 and 1851, while 
the population had decreased about one- seventh, the 
registered electors had more than doubled in number. 
Scotland in many respects furnishes a safer test than 
either England or Ireland, as there has been no dis- 
turbance as regards the increase of its population, and 
also inasmuch as it has no forty-shilling freehold fran- 
chise, by means of which factitious additions can be 
so easily made to the constituencies. And the statis- 
tics for Scotland show that whereas population in the 
nineteen years subsequent to 1832 increased less than 
one-fourth, the electors increased more than one-half 
The following are the figures : — 


Electoral returns, it is true, are very unsafe data to 
employ in a question of this kind, for the number of 
householders placed upon the roll is greatly influenced 
by periods of political agitation or apathy, and still 
more by the laxity or strictness observed in purging 
the roll. But if we exclude these data altogether, it 
will nevertheless be obvious that the vast increase of 
commerce, employment, and wealth, consequent upon 









the gold-discoveries, by gradually raising house-rent? 
and the condition of the people, will steadily carry on 
this natural extension of the Parliamentary franchise. 
We think, then, that the small minority of "advanced" 
Liberals, who bewail the failure of Lord Eussell's 
projects of Parliamentary Eeform, may take comfort, 
seeing that, gradually and surely, a virtual lowering 
of the franchise is taking place sufficient to satisfy 
the desires even of the most ardent believer in the 
wisdom of the masses. 

Halcyon periods of unbroken quiet and prosperitjT 
are of rare occurrence and of brief duration in the his- 
THE GOOD ^^^ ^f ^^y country. There is always a sha- 

TiMEs. (Jq^ — always a drawback. Wars and cala- 
mities we may expect in the future, as we have met 
them in the past. Nevertheless there are times when 
the social condition of a people improves with a 
rapidity and to an extent which are exceptional in its 
history. Such a period, we believe, this country — and 
in some degree the whole civilised world — has now 
entered upon ; and the chief agent (though of course 
not the only one) in producing this period of prosperity 
is the new and great supply of the precious metals, 
which enables every country to extend its foreign com- 
merce to a degree impossible before, and, by means of 
that commerce, to obtain more employment for its 
people, and increased profits for its traders and capi- 
talists. Every one has been surprised that so great a 



calamity as the Cotton ramine has weighed upon ns 
so lightly ; but if we look into the case thoughtfully, 
we shall see that the great mitigator of the calamity 
has been that increase of our trade with foreign coun- 
tries, which but for the gold-discoveries we had not the 
means of carrying out. Providence sends hard times 
upon the world occasionally ; now it sends prosperity. 
A prosperity, indeed, not uncheckered, but apparently 
more full of promise and of social advantages than any 
which the world at large has yet witnessed. 


Of all the inventions of which Necessity is the stern 
mother, the inventions of Economy are the most pro- 
minent at the present day. Many new forces have 
recently been discovered and placed under the control 
of man, but it is the utilisation of hitherto useless 
things which still more peculiarly characterises our 
times. What our forefathers neglected or despised, 
we have learnt to appreciate ; what they threw away 
we carefully gather up. Nothing is too small or too 
mean to be disregarded by our scientific economy. 
The seeming rubbish and fag-ends of creation, which 
our ancestors would gladly have thrown over the 
garden-wall of the world into the limbo of chaos or of 
space, are now converted to profitable purposes, con- 
ducive to the greater comfort and prosperity of life. 
"Waste nothing" is the key-note of our material 
industry. In the farm and in the manufactory, and 


not least among the vast hives of population in our 
great cities, the word " refuse," in its old sense, is well- 
nigh exploded. We now see that everything is of use, 
if we take it to the right place, and put it to its right 
purpose. Just as the farmer turns even the weeds to 
account, as a manure for the fields which they encum- 
bered, so is it in all the other branches of industry. 
The making of many small gains is now considered 
a safer and more profitable mode of business than 
aiming at a few large ones. It is the utilisation of 
neglected resources, the accumulation and concen- 
trated appliance of a thousand forces or savings, each 
trifling of itself, which is the basis of our extending 
power. We are economising our Money, like every- 
thing else: and this economy of capital, almost as 
much as the new gold-mines, is the agency which 
is giving to commerce its enormous expansion. 

The first gold-seekers in California, we are told, 
did their work so rudely and imperfectly that their 
successors, when they came into the field with new 
and better appliances, found it a profitable business 
to occupy the old diggings, and extracted from the 
despised heaps of refuse about as much of the precious 
metal as had been obtained by the first workers. The 
first comers thought only of nuggets and large prizes ; 
the later ones sought their chief gain in concentrating 
and extracting the invisible grains of precious ore 
from over a wide and apparently unpromising field. 





The appliances of Banking have a similar effect in 
our social system. They have economised enormously 
the wealth of every country in which, like our own, 
they have been well developed. 

Even in England, until lately, banking was in a 
rudimentary state. The private banks of London, in- 
deed, were perfect of their kind : their pro- 
prietary possesses the wealth which is re- 
quisite to insure confidence, and the practised abil- 
ity (in most cases an hereditary experience) which 
insures efficient administration. The private banks 
throughout the country, on the other hand, could not 
be relied on as possessing either of those requisites, 
and were especially deficient as regards their amount 
of capital. The introduction of the joint-stock system 
— only recently adopted in England, though it has 
existed for more than a century and a half with 
marked success in Scotland — has given an immense 
expansion to banking, and has proportionally increased 
the available capital of the nation. 

It is to Scotland that we must still look to see the 
economy of capital in the most perfect form that has 
yet been devised. There, every little country town has 
its bank or banks, branches of the parent institutions 
in the capital. Each of those branch-banks becomes a 
reservoir for the spare money of the surrounding dis- 
trict. The sheep-farmer, as he returns with heavy 
purse from the fair, and the grain-farmer, as month by 


month lie receives payment for his sales, hasten to 
deposit their money in the bank, — ^where it is not 
only kept securely and at call, hut where a moderate 
rate of interest is paid on the amount deposited. The 
country shopkeeper, in like manner, and even the cottar, 
take thither their small gains, to be ready for the paj^- 
ment of wages or of rent ; and the great landowners of 
the district receive their rents through the same channel. 
The managers of these branch-banks, living in the 
midst of each district, and knowing well the character 
and circumstances of those who deal with the bank, 
are ever ready to lend timely aid to any of their cus- 
tomers who are in need of it, and who are deserving 
of confidence. In this way two great objects are 
gained. Each man in the district, instead of (as for- 
merly) keeping his savings in a strong chest, or hid in 
an old stocking, is now richer by receiving interest on 
his money from the bank; and the industry of the 
district is at the same time fostered by the advances 
(in the shape of cash-credits) which the bank-man- 
agers are ever ready to make upon moderate terms to 
w^orthy customers. While the district is thus bene- 
fited, the greater part of its surplus money is trans- 
ferred to the central banking establishments, where it 
is profitably employed in the discount of mercantile 
bills, and in other ways which are all more or less 
conducive to the development of industry and the 
expansion of commerce. The spare money of the 



country, the accumulation of hundreds of petty sav- 
ings, is transferred to the chief seats of industry, 
and is made to quicken the wheels of trade and 
manufacture, and thereby increases employment and 
profits throughout the whole country. In short, the 
general commerce and prosperity of the country is 
immensely increased, at the same time that each 
district is separately benefited. Hence it is that a 
country so poor and so thinly peopled as Scotland 
has, during the last hundred years, made such rapid 


England, in proportion to her population, stiU more 
in proportion to her wealth, lagged far behind Scotland 
in her progress in the appliances of banking. Never- 
theless, her progress in this line during the last fifteen 
years has been remarkable. Irrespective of private 
banks, the joint-stock banks already established, along 
with their branches, amount to about 1600 — spread 
over the country, and forming so many centres for 
receiving and utilising the spare money of the nation. 
So successful have been the joint-stock banks of Lon- 
don (of which there are now twelve), that the amount 
of deposits intrusted to them is at present upwards of 
£80,000,000. The following statement of the de- 
posits, paid-up capital, and the rate of profit during 
the last twelve months, demonstrates the success which 
has attended the leading establishments of this kind 
in the metropolis : — 



Net Profits 


• Six Months. 

Paid-up CapiUL 


on the 
Six Months. 

of Profit 
per Annum. 

July— Bee. 1863 : 


London and West- ) 
minster, . j 





Union Bank, 





London Joint-Stock, 





Bank of London, 





City Bank, 




Jan.— June 1864 : 


London and West- \ 
minster, . j 





Union Bank, 





London Joint-Stock, 




41 .-i 

London and Country, 




31 J 

Alliance Bank, . 






In the English provinces, the introduction of the 
system of joint- stock banks has proved equally suc- 
cessful — especially in the great seats of manufacturing 
industry. For example, for the first six months of 
1863, the Birmingham Joint-Stock Bank paid a divi- 
dend at the rate of 10 per cent per annum ; the Shef- 
field Union Bank, 10 per cent; the Sheffield and 
Eotherham Bank, \2\ per cent; the Bradford Banking 
Company, \1\ per cent; the Huddersfield Banking 
Company, 26 per cent ; the Yorkshire Banking Com- 
pany, 29 J per cent ; and the West Eiding Union Bank- 
ing Company, 47^ per cent. For the subsequent twelve 
months these rates have doubtless been still greater. 
For it appears from the returns of the London joint- 
stock banks that, owing to the high rate of discount, 
the profits of banking were one-fourth larger in the 
* See also Appendix A. 



last six months of 1863 than in the previous half-year ; 
and during the first half of the present year, as is 
shown in the preceding table, the profits of banking 
have been still greater. In fact, every rise in the 
Bank of England's rate of discount is tantamount to 
an increase in the profits of banking. d^| 

In the United Kingdom the number of existing 
banks and branch -banks is said to be about five 
thousand ; and the amount of money deposited with 
those establishments cannot be less than three hundred 
millions sterling. We may add that, on the 30th 
January last, the capital deposited in Savings-banks — 
in other words, the spare money of the lower classes, 
concentrated and economised — amounted in the United 
Kingdom to £43,615,000. Of this amount 3f millions 
were deposited in the recently established Post-ofiice 
Savings-banks. Hl|| 

In Scotland there are thirteen banks (five of which are 
minor and provincial), with 615 branches ; and all of 
these banks issue notes of their own, of 
the value of £1 and upwards. The currency 
of Scotland consists entirely of paper-money — gold- 
money, which the English people prize so much, being- 
regarded by the Scotch as alike cumbrous and expensive. 
The paper-money issued by the Scotch banks amounts 
to four and a half millions sterling : against which they 
hold nearly two and a half millions of specie. Indeed, 
so thoroughly secured are not only the issues, but also 




the deposits, of the Scotch banks, that in no case has 
any one of them failed to discharge every farthing of its 
liabilities. In Ireland there are six banks of issue, 
with a note-circulation of about six millions, — of which 
amount about two and a half millions belong to the 
Bank of Ireland. In England there are 204 banks of 
issue, and the amount of their notes in actual circula- 
tion averages about twenty-seven millions. Of this 
amount, fully twenty millions belong to the Bank of 
England, — three millions to joint-stock banks of issue, 
of which there are 61, — and three and a quarter mil- 
lions to private banks of issue, of which there are 142. 

Since 1844-5, the expansion of the use of paper- 
inoney in this country has been checked. By the 
Acts then passed, no new bank of issue was allowed 
to be established; and for all additional issues of 
notes on the part of existing banks, it was made 
imperative that they should keep on hand an equal 
amount of gold. In England, where there are no 
notes of less value than £5, and where consequently 
cheques serve almost aU the purposes of bank-notes, 
this restriction is of little moment. But in Scotland, 
where the greater part of the currency consists of £1 
notes, the restriction is felt as a hardship, and as an 
uncalled-for interference on the part of the Govern- 
ment. It was an interference with the freedom of 
issue which had previously prevailed in Scotland, 
and it has also produced a waste of capital in the 



Scottish currency. For every addition to the note-' 
circulation of Scotland, the banks have had to purchase 
and keep on hand an equal amount of specie — a con- 
dition which neutralises the economy of capital which 
it is the sole use of bank-notes to effect. Moreover, 
by the failure of the Western Bank in 1857, a portion 
of the Scotch note-issues against which it was not 
necessary to hold specie, amounting to £337,000, 
lapsed, and has not yet been restored. The present 
Chancellor of the Exchequer acknowledges the jus- 
tice of the demand for the restoration of these lapsed 
issues ; and probably the existing banks will ere long 
be empowered to replace them. 

It is only the portion of a nation's capital which 
exists in an available form that adds to the power and 
resources of a State. Twenty million pounds sterling 
lying in the strong-boxes of half a million little trades- 
men and farmers, is so much money lo^t to the na- 
tional industry; but the same sum concentrated and 
lent out in the form of discounts, and other commer- 
cial advances, would give additional employment to 
the working-classes, increased wealth to the trading 
community, and greater power to the State. Banking 
is the agency by which this desirable end is accom- 
plished ; and we are not surprised that, both in this 
country and on the Continent, banks and credit com- 
panies should stand high in public favour. Within 
the last dozen years, France has done wonders in sup- 


plying her defects in this respect. The shares of the 
Credit Foncier (250 francs paid) are now at 1210 
francs; those of the Credit Agricole (100 francs paid) 
are at 740 francs; those of the Credit Industriel et 
Commercial (125 francs paid) are at 755 francs ; and 
those of the Credit ^lobilier (500 francs paid) are sell- 
ing at 1000 francs : and before the present tightness 
of the money market, their value was very much 
higher. France has only one bank of issue, the 
Bank of France, although it is a controverted point 
whether it be legally endowed with a monopoly 
of the right to issue notes. It is an admirably 
managed institution, and has rendered important 
services alike to the State and to the country. In- 
deed, looking at the many seasons of difficulty which 
it has successfully surmounted, without occasioning 
any of those fearful panics and crises which are the 
bane alike of this country and of the United States, 
we think the Bank of France is fairly entitled to be 
considered the best managed bank in the world. It 
has fifty-three branches, and the number is being in- 
creased every year — the Bank being bound by law to 
establish a branch in each of the eighty-nine Depart- 
ments within a given period. The number of " bankers " 
in France is 2300 or 2400 ; but the term bankers in 
France often — in fact generally in the provinces — 
means only bill-discounters. The use of cheques is 
still very limited ; and, chiefly in consequence of this. 



there is a great waste of capital, owing to the amount 
of metallic money in use. The metallic currency of 
France has been estimated at from £200,000,000 to 
£280,000,000 ; but doubtless it has been considerably 
on the decrease of late years; and the last estimate 
of its amount which we have seen states it at from 
£160,000,000 to £200,000,000.* 

In Turkey, British and French capital is reaping 
great profits by the establishment of banks. But of all 
the countries of the Continent, Austria (bating the 
political shocks by which she is menaced) is the one 
which presents the finest field for banking. So una- 
vailed of hitherto have been the appliances of banking 
in that country, that the Austrian Government has 
kept its balances (about five or six millions sterling) 
locked up in its own vaults : thereby losing interest 
on the money, and keeping idle and useless a large 
sum which, if confided to a bank, would be employed 
in giving direct support and expansion to the com- 
merce and industry of the empire. In India, also, 
new banks are being rapidly established. In Austra- 
lia, New Zealand, the Cape, British Columbia, Mexico, 
and among the States of South America — indeed, all 
over the world — English capital is seeking investment 
in the formation of banking establishments. In truth, 
it is a remarkable fact that the Age of Gold is becom- 

* Speech of the Duke de Morny, in the Corps Legislatif, on the 
25th of May 1864. 


ing also the age of Banks, — and that the extraordinary 
increase in the supply of the precious metals has been 
accompanied by a not less extraordinary increase in 
the means for economising them. 

In no country in the world does the economy of 
capital approach to the comparative perfection which 
has been attained in the British Isles. But there are 
improvements yet to be made ; and in London itself a 
change is at work which ere long wiU effect a revolu- 
tion in our banking-system. The day of the private 
banks is drawing to a close. They are still as sound 
and as ably managed as ever, but it is easy to see that 
they are destined to wane before the new rivals that 
are taking the field. The great private banks will 
last, indeed, for many a day, and will continue to 
yield large profits, — ^but no new private banks will be 

The private banks in London, like the Bank of 
England, used to pay no interest to their depositors, 
PRIVATE however large the amount deposited, or how- 
BANKs. gygp iQjjg j^ might lie in the bank. This 
was a great drawback on their popularity, after 
the joint-stock banks started; and recently some of 
the private banks have begun to give interest on 
nearly the same terms as their new rivals. On the 
other hand, they have certain advantages peculiar 
to themselves. From having a narrower and more 
select range of business, and consequently knowing 



their customers unusually well, they are more ready 
to make advances to their customers, and (which is 
a great point with men in business) do so more pri- 
vately, than is the case with the joint-stock banks -J 
which are necessarily fettered by rules, and where the 
managing power is a board of directors. Men who 
are engaged in an extensive business, not seldom re- 
quire a temporary advance in order to enable them to 
execute some large order, but, most naturally, they 
are reluctant to make a statement of their affairs which 
will be brought under the notice of a board of direc- 
tors ; whereas they need have no such delicacy in 
applying to the head of a private banking establish- 
ment. Again, as regards efficiency of management, 
the private banks of London cannot be surpassed — we 
may say, cannot be equalled ; for they are managed by 
the proprietors themselves, who have a deeper interest 
in the welfare of the establishment than a salaried 
manager can have, and who also, in most cases, have 
an hereditary experience in banking. 

Nevertheless it is found that, as a rule, the joint- 
stock system of banking is the more popular and ad- 
vantageous : and this in the end will de- 
cide the question between the rival sys- 
tems. A board of directors, elected by the share- 
holders, and each having a separate business of his 
own to attend to, certainly does not constitute a beau- 
ideal of management ; although the defect is partially 



redeemed by the appointment of a permanent manager. 
But it is found that the immense sums at the disposal 
of joint-stock companies, compared with those at the 
command of private bankers, gives them an advantage 
which enables a moderately good management to 
realise greater profits than can be attained by the 
most talented management of lesser sums. The large 
amount of subscribed capital which joint-stock banks 
offer as security, the publicity given to their balance- 
sheets, and, most of all, the interest which they allow 
upon money deposited with them, render them more 
popular than the private banks ; their system of 
branches, and their large number of shareholders, give 
them a wider sphere of operations ; and the high 
profits which they generally pay render them attrac- 
tive to capitalists who desire to engage in banking. 
Joint-stock banks will continue to increase, and the 
private banks will slowly die out.* The private banks 
of London, indeed, as was suggested some years ago by 
Mr M'Leod, might themselves unite together, and form 

* In 1840, Lord Overstone, in his evidence before the Parlia- 
mentary Committee on the Bank Charter, condemned the joint- 
stock system as quite inapplicable to banking. " I think joint-stock 
banks," he said, *'are deficient in everything requisite for the con- 
duct of banking business, except extended responsibility." And 
this opinion is quoted with approbation by Mr M'Culloch in his 
Commercial Dictionary so late as 1859. Yet only a few months 
ago, the great private banking firm, of which Lord Overstone was 
so long the head, gave up business ; and, with the express approval 
of his lordship, transferred their business to the London and West- 
minster Joint-Stock Bank ! 



a joint-stock bank of unequalled prestige and resource^ 
but so many private questions of punctilio and pre- 
cedence would have to be overcome before such a cor- 
poration could be established, that such a project is 
not capable of realisation. Nevertheless, that the pri- 
vate bankers of London are not blind to the tendency 
of affairs, is evidenced by the union which has re- 
cently taken place between two of these banks (Messrs 
Heywood & Kennards' and Messrs Hankey's) and 
the Bank of Manchester — which three banks, unit- 
ing the advantages of both systems, now form a joint- 
stock company under the name of the " Consolidated 

Tliat banking is a highly profitable business is evi- 
denced by the statement which we have given of the 
PROFITS OF pi'ofits yielded by some of the leading bank- 
BANKiNG. jj^g companies. A successful bank in Eng- 
land, it appears, pays a dividend ranging from 15 to 
25 per cent, with no trouble whatever on the part of 
its shareholders. Sometimes the dividend reaches 
the enormous rate of 50 per cent. How comes it, it 

* Since this was written (Feb. '64), such banking amalgamations 
have proceeded on a large scale, viz. :— Jones, Lloyd, & Co.'s bank 
with the London and Westminster ; Barnett, Hoares, & Co. with 
Hanbiiry's and Lloyd's ; Currie's with Glyn's ; Robarts' with Lub- 
bock's ; Masterman's with Bank of Agra ; A. Spielman & Co. with 
the London, Hamburg, & Continental Exchange Bank. Some joint- 
stock banks have likewise amalgamated, viz. : — the English & Irish 
with the Eiu-opean, and the Bank of Hindostan with the Bank of 


^vill naturally be asked, that banking yields such very 
large profits ? The essential requirement of good 
banking is security for the depositors. Individual 
traders, whose failure or success affects only them- 
selves, may apply their money in any way that ap- 
pears to them most likely to yield the largest profits. 
But a Bank trades with other people's money ; and 
the paramount consideration with the public, when 
placing their money in bank, is security. The science 
of banking consists not in employing money at the 
highest rates, but in the safest manner. And this is 
generally done. The explanation of the large divi- 
dends paid by successful banking companies is, that 
they obtain a profit on their depositors* money as weU 
as on their own. The capital of a banking company 
may be two or three millions sterling — that amount 
being liable to be called up, if necessary, to meet the 
engagements of the bank ; but only a part of that sum 
is paid up. The larger the capital, the greater is the 
security for depositors ; and the greater the security, 
the greater is likely to be the amount of money in- 
trusted to the bank's keeping. On the other hand, the 
smaller the amount of capital paid up, the greater 
{cceteris paribus) will be the percentage of profits to 
the shareholders. Say that a bank (which may have 
a subscribed capital of two or three millions) has 
£1,000,000 paid up, and that its deposits amount to 
£15,000,000 — then it can deal with sixteen times the 



amount of money invested by its shareholders ; an( 
thus, instead of (say) 5 per cent, its gross receipts 
will amount to 80 per cent. The net receipts or profits, 
of course, are much less, — ^because the interest paid to 
depositors,* costs of management, &c., have to be de- 
ducted : nevertheless, it is easy to see how such a bank 
will pay 25 per cent. This, then, is the secret of the 
high dividends paid by the English banking com- 
panies. In Scotland, however, the banks rarely pay 
a dividend above 9 or 10 per cent : a much larger 
portion of their profits being given to their customers 
in the shape of interest, and their reserves also being 
larger in proportion to their liabilities than is the case 
with the English joint-stock banks. It seems to us, 
indeed, that the present high profits derived from 
banking in England are quite abnormal : they cannot, 
and ought not, to last. ^j 

The English joint-stock banks are still, we think, 
defective in some of their arrangements. These lack 
simplicity — and simplicity, as has been proved abun- 
dantly, is a matter of first-rate importance in the pro- 
motion of business. Most of them pay interest only 

* The proportion which the amount of interest paid to depositors 
bears to the net profits of a bank is dependent partly on the skill 
of the management and partly on the state of the money market. 
In the case of the Union Bank of London, during the last six months 
of 1863, the proportion was one of equality, — the interest paid and 
due to depositors being £112,000, and the net profits, after making 
ample provision for bad and doubtful debts, being £114,000. See 
also Appendix A. 


on such current-accounts as never fall below a certain 

amount (generally £500) ; and they vary their rates 

according to the length of time the money is 


ENGLISH placed at their disposal.* This is a great 
improvement on the system of the Bank of 
England, which gives no interest at all, — but it is still 
defective. The immemorial practice of the Scotch 
banks has been to pay a uniform rate of interest on 
every sum deposited with them, however small, and 
for however short a time. Eecently, in November 
1863, the Scotch banks resolved to allow their cus- 
tomers the option of having interest calculated as be- 
fore — i. e., on the daily balance — or on the minimum 
monthly balance of their accounts; the banks allowing 

* There is a great and perplexing diversity in the practice of the 
London joint-stock banks in this respect. Some of them pay no 
interest at all upon current-accounts which at any time during the 
year happen to fall below £500. Of the more liberal class of banks 
we may take the case of the recently • established Alliance Bank, 
the custom of which is as follows: — If the balance shall not at any 
time during the half-year have been below £500, interest at the rate 
of 2 jjer cent per annum will be allowed on the minimum monthly 
balances ; if not below £200, 1 per cent will be allowed ; if below 
£200, no interest. It is obvious that, under the general system of 
these banks, a current-account which may average £500 on the 
whole year may yield no interest at all, owing to a temporary fall 
below the limit of £200; and on accounts which keep above this 
limit, as interest is paid only on the lowest sum at which the 
account may stand during the month, the depositor will in general 
receive interest on little more than two -thirds of the average amount 
which he has in bank throughout the month. Upon these current- 
accounts, too, the interest never exceeds 2 per cent. Upon sums 
received in deposit, the Alliance Bank pays interest at the current 


in the latter case, and also on deposit-receipts, one per 
cent higher interest. But this change is only nominal, 
and the rate of interest substantially remains the same 
on all sums : for it is obvious that, though the interest 
given in the latter case is higher than in the former, 
it is paid upon a lesser amount. The practice of the 
Scotch banks is entirely opposed to the peculiar fea- 
ture of the English joint-stock banks — namely, the 
non-payment of interest except upon comparatively 
large sums. The English practice has these advan- 
tages, that it saves the bank a little trouble, and adds 
greatly to its profits ; it also enables it to pay a higher 
rate of interest upon deposit-accounts, by paying little 
or none upon current-accounts. Its great defect, in a 
national point of view, is that it holds out no temp- 
tation to small capitalists, — the average cash-balance 
of each of whom may be only £100 or £200, but 
whose capital in the aggregate would amount to a very 
large sum. Too large to be received by the savings- 
banks, too small to obtain interest from the banks, 
these little capitals have not yet been looked after in 
England. In Scotland, on the other hand, they are 
attracted into the common reservoir, and constitute no 
insignificant portion of the motive power which drives 
the wheels of industry and commerce. England is so 
enormously wealthy, and the habits and ideas of the 
English are so much in accordance with their con- 
dition, that they are still careless of this portion of 


the national resources ; but the Scotch, in the school 
of necessity, have become more careful in economical 
science, and in this matter their example may be fol- 
lowed with advantage by their English brethren. If 
the English joint-stock banks are to establish branches 
throughout the country in the manner of the Scotch 
banks (as we hope will be done in course of time), 
they will find it indispensable to alter their practice, 
and frame their rules so as to suit the wants of the 
small capitalists, farmers and shopkeepers, who form 
the bulk of the population in the country districts. 

The heart of this great system of banking, which 
now overspreads the whole country, is the Bank of 
England. It was founded in 1694, and the Bank of 
Scotland in the year following. Both of these banks 
owed their origin to the same man — William Paterson, 
M.P. for Dumfries. The project of the Bank of Eng- 
land was ultimately taken out of his hands ; but he 
had his own way in the establishment of the Bank of 
Scotland. And the issue in the two countries was 
very different — fraught with great benefit to the one, 
and with repeated disaster to the other. In Scotland 
the first estabhshed bank claimed no monopoly : bank- 
ing was made a free trade. In England the Bank soon 
claimed and obtained a monopoly. No other joint- 
stock bank (no banking company having more than 
six partners) was allowed to be established in Eng- 
land. In 1826, after more than a century of complete 



restriction, this monopoly was narrowed to the districi 
within sixty-five miles of London ; in 1844 it was 
finally abolished, but the right of new banks to issue 
notes was taken away. 

Mark the results on the welfare of the two countries. 
One by one, as they were needed, joint-stock banks 
were established in Scotland, having their head-offices 
in the capital, and gradually extending their opera- 
tions by the establishment of branches throughout the 
provinces. In this way a small number of banks suf- 
ficed. Banking, free and unshackled, grew with the 
growth of Scotland. Each branch-bank had a local 
manager, and all were in perfect union with the head- 
office in the capital. Tlie head-offices in Edin- 
burgh, again — the parent-establishments — were all in 
connection with one another ; each receiving the notes 
of the others; having a weekly "clearance," or balan- 
cing of mutual accounts ; and each having a j)retty 
good idea of the general business and position of the 
others. Thus banking in Scotland was (1) established 
in the best form — namely, almost entirely upon the 
joint-stock principle; and (2) the banks established in 
the capital, while ramifying through the country, can 
mutually support one another in times of temporary 
difficulty or panic. After lasting for a century and a 
half, free-trade in banking was brought to an end in 
Scotland by Sir E. Peel's Act of 1845, which propi- 
tiated the existing banks for the restrictions then 


imposed upon tliem, by conferring upon tliem a virtual 
monopoly. The Act, it is true, places no restrictions 
on simple banking — only on the right of issuing notes : 
but, owing to the peculiarity of the Scotch currency, 
no bank has an adequate chance of success which can- 
not issue its own notes. Such, at least, is the case 
at present. Happily, as the Scotch banks compete 
eagerly with one another in the establishment of 
branches, leaving no district unoccupied, the mono- 
poly has not acted injuriously — unless it be in making 
the banks chime in too readily with any proposals of 
the Government for the sake of having their monopoly 
undisturbed. The principle is a bad one, but the fruits 
as yet have not been evil. 

In England, the monopoly of the Bank prevented 
for more than a century the formation of any other 
joint-stock bank; neither did the Bank of England 
occupy the field itself by establishing branches through- 
out the country. But, as a want of banks was felt, 
private individuals came forward to do what would 
have been far better done by joint-stock companies. 
Private bankers started up in every town, receiving 
deposits and issuing notes of their own — many of 
them able and honest men, some of them not, but 
none of them possessing the extended resources of a 
joint-stock company. Moreover, by a sad fatality, 
even when the monopoly of the Bank began to be 
relaxed, in 1826, the provision that no joint-stock 



bank should be established within 65 miles of London 
was one of the most injurious that could possibly be 
devised. The consequence has been, that there is 
neither system nor connection among the English 
banks. The banking establishments do not ramify 
from London, as a centre; they exist, for the most 
part, independently of one another — head-banks being 
found all over the country, with few or no branches, 
and with no point of union with their neighbours. 
This is an expensive system, for head-banks are estab- 
lished sometimes where branch-banks would suffice ; 
it is chaotic and without method ; and it is needlessly 

Tlie Scotch banks can, and do, help one another 
most efficiently ; the English banks can do so but im- 
co-opERATioN perfcctly. The latter (until recently) have 
OF BANKS. }jg^(j ^Q grow up everywhere except in the 
metropolis ; and accordingly they lack central represen- 
tatives, and find it difficult to combine for mutual sup- 
port. All banks exist upon Credit : let that be broken, 
and not even the best and strongest of them can exist for 
a day. It is alike the duty and the interest of banks to 
support credit. If, for example, in times of panic, a 
run be made upon one of their number whose position 
they know to be sound, they ought at once to unite in 
support of that bank. This is the best, if not the only 
effectual, means of arresting a panic — that wild unrea- 
soning fear which grows with every disaster which it 


produces. The fall of one bank only increases the run 
upon the others : but united action upon the part of 
the banks (at least if the Bank of England were un- 
trammelled by legislation) would be adequate to resist 
a greater panic than has yet arisen. 

Without union, no banking system can resist the 

effects of a panic. A panic strikes at the root of all 

banking. The rules of banking are based 


upon the amount of money necessary to 
meet the ordinary demands of the public, whether 
in the cashing of notes or withdrawing of deposits. 
But if a run takes place for any considerable portion 
of deposits, the bank must close its doors. Bank- 
ing was never designed to meet such emergencies. It 
is no slur upon a bank that it cannot sustain such 
an abnormal pressui-e. The Bank of England itself 
would break down at once under such a trial Panic 
is a temporary collapse of public credit — a rupture of 
our whole fabric of material civilisation — a national 
epilepsy. To think that any legislation will suffice to 
render banks able to withstand such an abnormal 
pressure, is simply absurd. If banks had always to 
keep on hand resources adequate to meet a panic, 
this could only be done by keeping their deposits un- 
employed, in their vaults : in which case there would 
be no profit (only expense) to the bankers, no aid to 
commerce and employment — in fact, no banking at all. 
Nevertheless, strange to say, the banks themselves, by 




their action, have frequently induced this most temoie 
of monetary tempests. ^1 

As this is a point of great importance, we shall 
illustrate it by referring to some cases where the facts 
are so clear as not to admit of dispute. ^1 

Let us take first the panics of 1793 and 1797. In 
1792 trade had been unusually, if not excessively, 
brisk ; and at the same time, as the year 
progressed, political agitation assumed for- 
midable proportions. Acts of riot and insurrection 
took place, and when war with France was declared 
at the end of the year, the public inquietude almost 
amounted to panic. Bankruptcies had doubled in 
number before the close of the year, and " the declara- 
tion of war gave a shock to credit, which was already 
staggering." On the 15th February a house of con- 
siderable magnitude failed ; and on the 19th the Bank 
of England refused the paper of Lane and Company, 
who stopped next morning with liabilities to the 
amoimt of nearly a million sterling. " In the mean 
time, the panic spread to the bankers." The run com- 
menced on the banks in Newcastle, which were per- 
fectly solvent, but which, in consequence of the run 
upon them, were obliged to stop payment. "The 
panic immediately spread throughout the country." 
In the west of Scotland, also, there was " the greatest 
distress from the total destruction of credit," which 
calamity was produced by " the refusal of the Glasgow, 


Paisley, and Greenock banks to discount." The mone- 
tary pressure extended also to the London banks. 
" The extraordinary state of credit [to speak cor- 
rectly, the total collapse of credit] had obliged every 
person connected with trade and money-transactions 
to gather in and husband every resource to meet all 
demands" — thereby, of course, greatly lessening the 
ordinary circulation. In these circumstances, "the 
Government urged the Bank to come forward and 
support credit, but they resolutely declined. When 
the Bank adopted this perverse course, universal 
failure seemed imminent." The Government, how- 
ever, with Pitt at its head, wisely took the matter 
into its own hands ; and, acting on the advice of 
Sir John Sinclair, made an issue of Exchequer bills, 
which acted like magic in sustaining public credit, 
and at once put an end to the crisis.* 

The panic of 1797 was produced entirely by poli- 
tical causes. There had been no over-trading of any 
kind. In December '96 took place the French ex- 
pedition under Hoche for the invasion of Ireland, and 
in the February following a French frigate landed 
1200 men on the Welsh coast. " At this time the 

* See M'Leod's Theory and Practice of Banking, vol. ii. p, 
68-72. We prefer to make our quotations from this work, because 
it is the ablest on the subject of which it treats ; and still more, 
because on this point Mr M'Leod's statement of facts is, to a con- 
siderable extent, that of an antagonist to the deductions which we 
make from them. 



banks at Newcastle had a more tlian ordinary demand 
upon them for cash ; because, in addition to thom 
manufactories and collieries, the number of troops 
stationed in that part of the country had been con- 
siderably augmented. The banks had imported an 
extra supply of cash to meet their expenses, and were 
negotiating for more," when the panic broke upon 
them and compelled them to stop. " The news of the 
stoppage of the Newcastle banks spread like wildfire 
throughout the country, and soon reached the metro- 
polis. The drain upon the Bank of England now be^ 
came a run," till on the 25th the specie was reduced^ 
to £1,272,000. " Before this, the Directors, in a state 
of utter bewilderment at the state of the country, had 
used the most violent efibrts to contract the issues. 
In five weeks they had reduced them by nearly 
£2,000,000. But even this gave no true idea of the 
curtailment of mercantile accommodation, for the 
private bankers were obliged, for their own security, 
to follow the example of the Bank." Next day 
(Sunday), to prevent the total stoppage of the Bank, 
an Order in Council was issued, authorising it to 
suspend cash-payments. And yet the position of the 
Bank was not only perfectly solvent, but such as to 
show a surplus of nearly £4,000,000 sterling — over and 
above the debt due by the Government to the Bank, 
which amounted to £11,686,000. So suicidal was 
the policy of restriction pursued by the Bank, that 


even the Bullion Committee of 1810, despite their 
morbid dread of "over-issues," explicitly condemned 
its conduct in this respect, both in 1793 and in 1797 * 
The other case to which we shall refer, in illustra- 
tion of this fatal but common error in banking, is that 
of the American crisis of 1857. The crisis began in 
the August of that year with the failure of the Ohio 
Life and Trust Company, which held deposits to the 
amount of £1,200,000, and of two or three other large 
firms. By this stoppage of payments great embarrass- 
ment and partial loss were occasioned to individuals, 
and also to the banks which had made advances to 
those firms ; at the same time railway property and 
financial establishments of all kiads became greatly 
depreciated, chiefly owing to the efforts of an organised 
band of speculators.-f* Thereupon the American banks 

* M'Leod's Theory and Practice of Banking, vol. ii. p. 88-92. 

t " There is actually a powerful combination for the avowed pur- 
pose of bringing all the principal undertakings to ruin. Unlike 
those of any other country, the majority of the leading speculators 
of New York are devoted to the task of depreciating the national 
credit. Whether this arises from the extent to which American 
securities are held by foreigners, need not be discussed. A large 
body of active persons are known to be associated for the purpose ; 
they influence the press, to work out their views, and are alleged 
not merely to operate with a joint capital, but to hold regular meet- 
ings, and permanently retain legal advisers, whose chief vocation it 
may be assumed is to discover points that may enable the validity 
of each kind of security to be called in question, and thus to create 
universal distrust." — Times City article, September 10, 1857. See 
also the City article for September 15 and 17 ; and the New York 
correspondence in the Times of September 14 and 24, 1857. 



took alarm, and began to curtail their advances to i 
commercial community, by refusing to discount tlieir 
bills, — the New York banks reducing their discounts 
to the amount of £5,000,000 sterling between the 8th 
of August and the 10th of October. Eight and left 
they ruthlessly withdrew their customary advances, 
and commercial houses went down in dozens. By the 
middle of October, nine hundred failures were reported. 
What was the upshot? The banks sacrificed their 
customers with the view of strengthening their own 
position, but their conduct had quite the opposite 
effect. Seeing firms go down in dozens — the good as 
well as the bad, the strong as well as the weak, — and 
knowing that many of those firms were connected with 
the banks, either as shareholders or debtors, the public 
in turn caught the panic, and began a run upon the 
banks for their deposits. The banks, too late, now 
found that they could no more conduct their business 
without credit or faith than their customers the mer- 
chants could ; and on the 14th October a general sus- 
pension of payments in specie had to take place 
throughout the Union. 

The American banks were thus taught a sharp les- 
son. A week before they were forced to suspend, 
they announced that they would alter their policy, 
and meet the panic by its natural remedy — an expan- 
sion of credit to all solvent but embarrassed firms ; 
and it was the publication of their returns in the 


week following, showing that instead of expanding 
they were carrying the work of contraction still. fur- 
ther, which brought on the general run for deposits 
which compelled them to stop. It is important to 
observe that not only were the New York banks 
perfectly solvent, but their notes were never mis- 
trusted : and even after the suspension of payments 
in specie, the notes continued to circulate at par * 
It was a run for deposits which shut up the banks : 
and a similar run would shut up any and every bank 
in existence. 

The sole object and advantage of paper-money is, 
that it economises gold. Paper-money, like banking, 
coNVERTi- would be of no use at all, if it were requi- 
BiLiTY. g^j^g ^Q keep an equal amount of gold in the 
banks. The proportion of specie requisite to maintain 
the convertibility of note-issues, varies with the credit 
of the issuer. The Bank of England's rule used to 
be that one-third of specie was amply sufficient to 
secure both notes and deposits. The common opinion 

* The notes not only continued at par after the suspension of the 
banks, but actually, at one time, rose to a high premium compared 
with gold. "According to advices received to-day," said the 
Times of October 31, "good sight bills could still be purchased at 
an exchange of 101. The extraordinary fact is therefore exhibited 
of the inconvertible currency of the Nexo York suspended hanks being 
actually at a high premium compared tvith the specie currencies of 
other countries. That is to say, a bill on London could be purchased 
in the notes of the New York suspended banks at a price which, 
after allowing for interest and all charges, would bring back in gold 
a larger sum than had been ])aid for it." 



which regards these note-issues as the great source o 
peril to banks is a mistake. The opinion has arisen 
from our monetary authorities having confounded two 
very diiFerent things. It is not a difficult matter to 
secure the convertibility of the note, but it is totally 
impossible to insure payment of any bank's deposits 
in gold. Banking deposits, in fact, are not made in 
gold, and cannot aU be paid in gold. All the available 
gold in the country would hardly suffice to pay 5 per 
cent of their amount.* A suspension of cash-pay- 
ments may become inevitable, although the notes of 
every bank were secured by an equal amount of specie 
in its vaults. It was not a run for gold in exchange 
for notes which caused the suspension of cash-pay- 
ments in 1797. It was a demand for the payment of 
deposits in specie : the specie being wanted for export 
in payment of the loans which this country was the 
making to foreign Powers. 

Now, in times of panic, the demand upon the bank! 
is not, or is not merely, for gold for the notes : in 
fact, in this country, during the present 
century, the solidity of the notes has never 
been questioned. The run is for deposits. In truth 


* The total amount of specie held by the banks of the United 
Kingdom, in ordinary times, is about £20,000,000; of which 
amount the Bank of England holds on the average 14^ millions, 
the Irish banks rather more than 2 millions, and the Scotch banks 
not quite 2^ millions. The deposits in bank probably amount to 


there never is, or can be, a run for gold apart from a 
run for deposits. If the holders of notes, who proba- 
bly have not more than £5 or £10 on hand, lose faith 
in the bank, the depositors will still more surely take 
alarm. If a bank cannot pay its notes, how is it to 
pay its deposits ? Hence the common idea which at- 
tributes such panics to a real or supposed unsoundness 
of the note-issues, is a great mistake. There would be 
panics and runs, on the banks though they did not issue 
a single note. The demand for gold in exchange for 
notes is merely an accompaniment (and a compara- 
tively trifling one) of the run for deposits. And such 
a run, if not promptly checked, must prove fatal : for 
no bank can pay up its deposits at once, whether in 
gold or in notes. 

It is easy to see how this run for deposits is occa- 
sioned in times of monetary pressure and distrust. 
REFUSAL OP The ordinar}^ business of banking consists 
DISCOUNTS. ^ ^-jjg discount of commercial bills — i.e., 
in the purchase of the current debts of commerce. A 
manufacturer supplies a merchant with £1000 of goods, 
and receives from (or draws upon) him a bill for the 
same amount ; and as the merchant's money is nearly 
aU invested in his business, the bill is not made 
payable until after the lapse of such time (say three 
months) as may be required by him to sell at least a 
portion of the goods which he has purchased. The 
manufacturer, in like manner, having his capital in- 



vested in his business, and not being able to wait till the 
three months have expired, takes the bill to his banker 
and gets it cashed, — receiving the £1000 minus the 
interest for three months at the current rate. All com- 
merce is carried on in this way, and in this way a great 
economy of capital is effected. What, then, is com- 
merce to do when the banks refuse to discount ? A 
general crash must follow. In ordinary times, when 
credit is good, a merchant may afford to wait a little 
before getting his bills cashed, for at such times he is 
not pressed by his fellow- merchants to whom he is 
indebted ; but in times of a monetary or commercial 
crisis, he cannot wait. Every man, to secure himself, 
is then pressing his debtors for payment ; and if the 
banks at such times refuse to discount bills as usual, 
nothing but bankruptcy can be the result, even for firms 
which are superabundantly solvent. The banks, when 
they take this course (which they generally do in a 
period of a crisis) doubtless act from a good and legiti- 
mate motive. They think of securing their own safety. 
They think of the convertibility of their notes, and the 
increasing scarcity of gold ; and, by refusing to discount 
the ordinary amount of bills, they seek to lessen the 
amount of their own liabilities. In case a run upon 
them should arise, they seek to lessen the amount uj)on 
which the run can be made. But this is a fatal mis- 
take, as experience abundantly demonstrates. It is 
impossible for any bank to reduce its liabilities to an 


amount whicli can be met by its available assets. Tlie 
true policy of banks lies in preventing the occurrence of 
a run for deposits, — wliereas they think only of trying 
to meet it. And the very measures which they take to 
prepare against a run, produce a run. These measures 
occasion a panic, and the panic produces a run; and quite 
reasonably. No other consequence is possible. Wlien 
the commercial public find that it is becoming difficult 
or impossible for them to get their bills discounted, 
they call up every shilling of their deposits ; or they 
sell their goods, and, taking the cheque which they re- 
ceive in payment to the bank, withdraw the amount 
in cash. When they cannot get money the one way, 
they take it in another. The general public, catching 
the infection, join in the run on the banks ; and the 
result is (if the panic be kept up by a continued cur- 
taibnent of discounts), that the banks, after a feverish 
scramble among themselves for the possession of the 
small stock of gold, stop one after the other, or by 
agreement simultaneously — as was the case with the 
New York banks in 1857. 

Banks exist for the community, not a community 
for the banks. And whenever banks forget this, and 
(Kke those in America) begin slaughtering a com- 
munity from a false notion of strengthening them- 
selves, it is not an evil, but a good, when they are pulled 
up in their course. The run for deposits which imme- 
diately arises in such circumstances is a natural and in- 




evitable result of the banks curtailing their discounts* 
At the same time, it is a natural and most obvious 
means of retaliation ; and as such, it was deliberately 
adopted by the commercial classes in New York in 
1857. The language then used was this : — " If you, 
(the banks) think yourselves justified, in a time of 
crisis, in bringing down scores of good firms, as solvent 
and reputable as yourselves, the public are still more 
justified in checkmating you, by requesting you to ful- 
fil your 'promises to pay.' Since it is on the plea of 
preserving the convertibility of the note (which we 
had no thought of questioning) that you produce this 
widespread suffering, the outraged community may 
well turn round upon you, and say, 'Very well, 
gentlemen, let us see if you can do it' Moreover, 
since you will not lend us your money, give us back 
ours: give us our deposits." The banks, of course, 
could not do it. And thereupon, perceiving that they 
had been sacrificing the substance for the shadow, 
they reversed their policy, discounted freely, though 
they had hardly a dollar in their tills — and the crisis 
was at an end. What is more, from that instant gold 
began to flow back into the banks in abundance ! 
Within three months after the 14th of October, when 
cash-payments were suspended, the stock of specie in 
the New York banks increased from £1,744,000 to 
£6,500,000 — actually a million sterling higher than it 
had ever been before. And " in the five principal sea- 


port cities of the Union, the stock of specie advanced 
from £3,400,000 to £10,000,000, although £3,200,000 
were sent to Europe in the interval." * 

This is a lesson and a danger to which all banks 
should give good heed. The American public is not 
likely to forget the experience which it acquired in 
1857, of its power to checkmate the banks. It is also 
by no means improbable that the lesson has been 
observed and noted on this side of the Atlantic, and 
may be put in practice if ever our banks should 
foolishly challenge the commercial classes to a trial of 

Having sliown how monetary crises may be, and 
often are, aggravated into destructive panics by a 
HOW PANICS mistaken policy upon the part of the 
ARE STOPPED, jjauks, Ict US complete the lesson by 
showing the chief means by which panic and a run 
upon banks are stayed. In 1793 we have shown how 
the monetary panic was produced, or at least intensi- 
fied, by the Bank of England curtailing its discounts, 
thereby aggravating the prevalent distrust ; and how 
the Government wisely came to the rescue by making 
an issue of Exchequer bills. The amount authorised 
to be issued was £5,000,000 in sums of £100, £50, and 
£20; but not half of that amount (only £2,202,000) 
was needed, and the whole of this sum was punctually 
repaid. AVhat was the effect of this aid to the com- 
*. Tirnes' City article, Jan. 27, 1856. 



mercial classes? "It operated like magic/' we 
•told: "its success was perfect and complete. All 
contemporary writers bear witness to the extraordi- 
nary effects produced. Macpherson says that the 
very intimation of the intention of the Legislature to 
siqoport the merchants operated like a charm all over 
the country, and in a great degree superseded the 
necessity of the relief by an almost instantaneous 
restoration of confidence."* In the crisis of 1797, 
when the Bank of England again took the course of 
enormously curtailing its discounts, the run upon it 
became so overwhelming that it was left almost with- 
out a sovereign in its coffers, and the Government had 
to come to its relief by ordering the total suspension 
of payments in specie. What followed ? " The relief 
produced on the instant by the definite determination 
to suspend cash -payments and extend their issues of 
paper was very great : within one week the Bank 
increased its accommodation by nearly £2,000,000 
sterling " — or nearly one-fourth ! Here, then, we see 
plainly that the convertibility of the note — for the 
sake of which the Bank had curtailed its discounts so 
enormously (one-fourth during five weeks) — had never 
really been questioned by the public : for an issue of 
notes was the very thing that was desired, and which 
stopped the panic. The notes were taken as readily 
by every one when it was known that there was no 
* M'Leod's Theory and Practice of Banking, vol. ii. p. 72-75. 


gold to cash them, as when the Bank was abundantly 
supplied with specie * 

Let us next look at the great crisis of 1826. The 
crisis was at its height in London from Monday the 
12th to Saturday the 17th December. For six months 
the Bank had been " violently contracting its issues " 
{i.e., by curtailing its discounts), and it continued this 
policy down to the night of Tuesday the 14th. During 
the previous forty -eight hours, said Mr Huskisson 
afterwards, even the best Government securities could 
not to any extent be converted into money: other 
stock, of course, was still more unsaleable : and Mr 
Baring said that persons would not part with their 
money on any terms, nor for any security. The preva- 
lent distrust, by invalidating the ordinary forms of com- 
mercial credit, had rendered a greater supply of money 
absolutely indispensable, — yet the Bank had been 
steadily doing its best to render money much scarcer 
than usual. At length it found that such measures 
were undermining its own position, and that, if con- 
tinued for another day, they would involve the Bank as 
well as the country in a common ruin. Accordingly, 
" on Wednesday the 14th the Bank totally changed its 
policy, and discounted with the utmost profuseness." 
In the words of the Deputy Governor, " they had [at 
length !] taken a firm and deliberate resolution to make 
common cause with the country." Instead of refusing 
* See M'Leod, vol. ii. p. 92-100. 



to discount, they forced out their money in loans in all 
directions. " We lent it by every possible means," said 
Mr Harman, " and in modes we had never adopted be- 
fore ; ... we were not on some occasions over-nice : 
seeing the dreadful state in which the public were, we 
rendered every assistance in our power." Between the 
Wednesday and Saturday, the Bank made issues of 
notes to the amount of £5,000,000. This policy, says Mr 
M'Leod, ''was crowned with the most complete success : 
the panic was stayed almost immediately." The mere 
sight of the bank-notes was enough. " At Norwich," said 
Mr Eichards, " when the Gurneys showed upon their 
counter so many feet of bank-notes of such a thickness, 
it stopped the run in that part of the country." By the 
24th of December the panic was completely allayed all 
over the country ; and by the end of the month the 
credit of the banking world was completely restored.* 

* M'Leod, vol. ii. p. 245-251. The immediate cause of the panic 
in London was the stoppage of Pole & Co., bankers, with whom 
forty country banks were connected, on Monday the 12th. "The 
fall of this great banking-house," says Mr M'Leod, "was the signal 
for a general run u])on all the London bankers, and three or four 
more gave way— spreading universal consternation among the 
country banks, sixty -three of which succumbed to the crisis, 
though a considerable number paid 20s. in the povmd, and eventu- 
ally resumed business." Yet it was proved that Pole & Co., whose 
stoppage produced all this disaster, had a surplus of £170,000, after 
payment of all claims against them — besides large landed proi)erty 
belonging to Sir Peter Pole, and about £100,000, the private pro- 
perty of other members of the firm. Ought not such a firm to have 
been supported, instead of being pulled to the groimd ? Co-operation 
among bankers, we repeat, in a time of crisis, is everything. 


The next great crisis was that of 1847 ; previous to 
which (by the Act of 1844) all liberty of action had 
been taken from the Bank in regard to its issues of 
notes, which were made entirely dependent upon the 
amount of specie in its possession. The extreme pres- 
sure in this crisis began on the 23d September, "when 
the Bank adopted more stringent measures for curtail- 
ing the demand upon its resources." On the 15th 
October it refused to make advances either on Govern- 
ment stock or on Exchequer bills : the consequence of 
which was that the other banks hastened to sell their 
public securities, and, for their own safety, hoarded 
the notes received in payment, — thus still further re- 
ducing the circulation. What they could not get from 
the Bank in advances on their securities, they got by 
the sale of them: so that the only effect of the 
Bank's restrictive policy was to create panic and 
hoarding, which immensely increased the difficulties of 
its position. Everything became worse day by day. 
Several large banks stopped payment in Liverpool, 
Manchester, Newcastle, and other towns ; and the 
drain on the Bank of England became greater than 
ever. "As the whole of the commercial world knew 
that the resources of its banking department were 
being rapidly exhausted, a complete panic seized them. 
A complete cessation of private discounts took place. 
No one would part with the money or notes in his 
possession." On the 23d of October the terrible game 



was played out. The Bank Act had to be suspended ; 
and the Government, with the view " to restore con- 
fidence to the mercantile community," recommended 
the Bank Directors to enlarge the amount of their dis- 
counts and advances. What followed ? The Govern- 
ment letter "was made public about one o'clock onfll 
Monday the 25th, and no sooner was this done than 
the panic vanished like a dream. Mr Gurney stated 
that it produced its effects in ten minutes ! Noi 
sooner was it known that notes might be had, than the 
want of theiu ceased." dj 

From the conduct as well as the statements of the 
Bank Directors on this occasion, it appears evident 
that they had no desire to contract their advances to 
the public, apart from the necessity to do so imposed 
upon them by the Act of 1844. They told the 
Chancellor of the Exchequer that "they could save 
themselves" — that is, they could comply with the law; 
"but that they could not do so without pressing more 
stringently on the commercial world." In how great 
a degree the crisis was artificial — how immensely it 
was aggravated by the restrictive policy imposed upon 
the Bank — cannot be better shown than in the follow- 
ing extracts from the speech of the Chancellor of the 
Exchequer (Sir C. Wood) on the subject : — 

" Evidence was laid before the Government, which 
proved not only the existence of severe pressure, but 
also that it was aggravated in a very great degree by 


the hoarding of gold and bank-notes to a very large 
extent — in consequence of which an amount of circula- 
tion, which under ordinary circumstances would have 
been adequate, became insufficient for the wants of the 
community. . . . Parties of every description made 
application to us, with the observation, *We do not 
want notes, but give us confidence.' They said, ' We 
have notes enough, but we have not confidence to use 
them : say you will stand by us, and we shall have all 
that we want : do anything, in short, that will give us 
confidence. If we think that we can get bank-notes, 
we shall not want them.' . . . Parties said to me, 
' Let us have notes — charge 10, 12 per cent for them — 
we don't care what the rate of interest is. We don't 
mean, indeed, to take the notes, because we shall not 
want them ; only tell us that we can get them, and this 
will at once restore confidence.' ... As soon as 
the letter of 25tli October appeared, and the panic 
ceased, thousands and tens of thousands of pounds 
were taken from the hoards ; some from boxes de- 
posited with bankers, although the parties would not 
leave the notes in their bankers' hands. Large parcels 
of notes were returned to the Bank of England cut 
into halves, as they had been sent down into the 
country. And so small was the real demand for an 
additional quantity of notes, that the whole amount 
taken from the Bank, when the unlimited power of 
issue was given, was under £400,000. Tlie restora- 



tion of confidence released notes from their hoards, 
and no more was wanted — for the trifling quantity of 
additional notes is hardly worth notice." * ii| 

Here, again, we see that the sufficiency of the 
Bank's notes was never questioned ; — that the crisis 
was mainly due to the hoarding of notes and gold by 
the public, owing to the breakdown of credit and coiaji| 
fidence; — that the restrictive policy of the Bank of 
England was the chief cause of this collapse of credit, 
aggravating a season of commercial difficulty into one 
of most destmctive panic; — -and finally that, imme- 
diately on the reversal of. that policy, the panic and 
hoarding were at an end, and confidence returned. 

The crisis of 1847 was the most severe which had 
occurred ; but it was surpassed in disaster by that 
CRISIS OF which followed ten years afterwards. In 

1S57. 1857 a wave from the American crisis 
crossed the Atlantic, and produced an equal crisis in 
our own islands. Towards the middle of October, the 
news from the United States assumed so sinister an 
aspect as to forebode some great monetary catastrophe ; 
and, ere the month ended, came the announcement of 
a universal suspension of cash-payments throughout 
the Union. This naturally put a severe strain upon 
the British firms engaged in the American trade, and 
upon the banks connected with them. The position 
of these houses was simply this, that they had to lie 

* Hansard, Third Series, vol. xcv. ]). 383. 

CRISIS OF 1857. 107 

out of all the money due to them by American firms, 
and to lose a part of it. The actual loss so incurred 
was the least part of the embarrassment ; for although 
the American firms, in consequence of the breakdown 
of credit, had suspended, the greater part of them 
were perfectly solvent, and able to resume as soon 
as the effects of the panic were over. The embarrass- 
ment of our trade, therefore, was essentially of a tem- 
porary character ; and the true way to have tided over 
the difficulty would have been by supporting to the 
uttermost all the sound firms imperilled, until the 
monetary equilibrium should be restored in America, 
and the usual remittances reach this country. This 
course was adopted by the Bank of England after the 
Bank Act was suspended, but as long as the Act 
remained in force such a course was impracticable. 

No crisis was ever so unexpected ; none ever culmi* 
nated so rapidly, or proved so destructive. Credit 
was shaken, and a run commenced upon several banks 
which were known or supposed to be connected with 
the suspended firms. The Liverpool Borough Bank, 
closely connected with the American trade, stopped 
payment. Dennistoun & Co. , likewise closely connected 
with American trade, had also to suspend, with liabili- 
ties to the amount of £2,143,701 ; and after reeling for 
some time under the run made upon it, the Western 
Bank of Scotland likewise closed its doors. Great 
exertions were made in Glasgow by the authorities 



and leading merchants to arrest the panic ; the other 
Scotch banks, alarmed at the aspect of affairs, and 
urged thereto by the community, at length came for- 
ward to check the distrust, and gave their united' and 
most energetic support to some of their number which 
were run upon. Thursday the 12th was the last day 
of the panic in Scotland. 

Meanwhile the crisis had spread to London. The 
Bank had raised its rate rapidly from 5 to 10 per 
cent ; and as all the discount - houses in London 
ceased to make advances, the accommodation given 
(or which under the Act could be given) by the Bank 
was totally inadequate. The more tight became the 
money-market, the faster were gold and notes with- 
drawn from the Bank. Every bank or firm sold its 
securities, and kept beside it the gold or notes thus 
obtained. In order to meet the run upon them, the 
Scotch banks had ordered about £1,000,000 sterling 
in sovereigns from London, — which they obtained by 
selling a portion of their Government stock (which, 
being readily convertible, they always hold in reserve 
for such emergencies), and thereafter getting the notes 
received in payment cashed at the Bank of England. 
The English and Irish banks took similar precau- 
tions; and altogether, in consequence of the panic, 
the banks found it necessary to keep by them about 
three millions more than their ordinary amount of 
specie. On Wednesday the 11th the great discount- 


CKISIS OF 1857. 109 

house of Sanderson & Co. was forced to suspend, with 
liabilities to the amount of £5,298,997 sterling. The 
great American firm of Peabody & Co. also was known 
to be in extremis — it was perfectly solvent, but, like 
other firms, it had for the time to lie out of its money, 
and thus was unable to meet its engagements. It was 
of the utmost impoi'tance to support this firm, as it 
was known that its fall would bring down many 
others, and establish a general panic in London. The 
firm required assistance to the extent of £800,000 
sterling; and the Bank, as fettered by the Act, had not 
this sum to advance. But no sooner was the Act sus- 
pended (on the afternoon of the 12th) than the re- 
quired sum was advanced to Peabody & Co. ; and the 
Bank in like manner extended its aid to many other 
firms, and to some of the English banks. In London, 
Liverpool, Manchester, Birmingham, indeed all over 
the country — as every one will remember, and as is 
proved by the trade-reports now lying before us — the 
beneficial effect produced by the suspension of the Act, 
and the resolution of the Bank to extend its issues, 
was instantaneous.* But so tremendous had been the 
calamity, that Trade remained nervous and palpitating 
for several days ; and four days after the suspension 
of the Act, the Times remarked, " The liability to an 
extension of panic has still been such, that the princi- 
pal banking institutions would have incurred a grave 
responsibility if they had suflfered any mischief to take 

* See Note at end of Chapter. 



place which was fairly preventible : " that is to say, 
if they had not freely made advances to all sound 
firms which needed assistance. 

The number of solvent, indeed very wealthy, firms 
which had to suspend during this crisis was remark- 
ably Q-reat ; and the fact throws an import- 


OF SOLVENT aut light upou the character of such crises, 
and upon the best means of averting them. 
The suspension of Dennistoun & Co., for example, 
which was one of the first houses that gave way, was so 
entirely artificial that, after providing for every shil- 
ling of their liabilities, " the accountant on the estate 
declared them possessed of a surplus of nearly three- 
quarters of a million." The suspension of Naylor, 
Vickers, & Co. was of a similar character, — the firm 
having assets to discharge all their debts, with a 
balance in their favour of £250,000. Messrs Sander- 
son & Co., with liabilities to the enormous amount of 
£5,298,997, paid in full, and resumed business ; and a 
large portion of the other suspended firms were proved 
to be in like manner perfectly solvent.* If these firms 

* For example, the accounts of Messrs Arthur & Co., of 
Glasgow, showed a bona fide surplus of £90,800. Messrs Sewell 
& Neck, engaged in the Norway trade, with liabilities to the 
amount of half a million, exhibited a surplus of £57,581, after 
paying their creditors 20s. in the pound, with 5 per cent interest. 
Messrs Pelly & Co., with liabilities to the amount of £3G,316, 
showed a surplus of £49,425 — "a result," justly observed the 
Economist, "which excites surprise that the house should have 
been allowed to succumb." In like manner, the assets of Mr 


could have been assisted, as Peabody & Co. were after 
the suspension of the Bank Act, it is obvious that the 
crisis would have been greatly mitigated, and the run 
upon the banks proportionately lessened, if not alto- 
gether prevented. The stoppage of any large firm 
not only gives a great shock to credit of itself, but a 

Johnstone of Glasgow were proved by the accountants to be nearly 
double his liabilities (the assets being £21,580, and the liabilities 
£11,440), "after deducting all ascertained and probable losses." 
C. Waud & Co., with liabilities to the amount of £60,000, showed 
a surplus of £20,000. Rew, Prescott, & Co., with liabilities to the 
amount of £150,000, paid 20s. in the pound, with a surplus of £8000. 
T. & H. Elmenhorst paid 20s. in the pound, with a surplus of £3114. 
Mr Peter Brown, whose suspension was caused by the pressure of a 
single creditor, had a surplus of £7719. Heine, Simon, & Co. , whose 
liabilities amounted to £700, 000, after paying 20's. in the pound, with 
interest, had a surplus of £53, 000. Crossley & Leeminge of Halifax, 
Craven & Harrop of Bradford, Woodhall & Smith of Dudley, T. Cal- 
lender & Co., and others, paid 20s. in the pound and 5 per cent interest. 
This list of solvent or wealthy firms, who figured in the bank- 
ruptcies of 1857, could be greatly extended. But even among 
those who had to compound with their creditors, there were very 
many cases in which the apparent insolvency was produced purely 
by the stoppage and bankruptcy expenses. In Scotland, the ex- 
penses of winding up au estate under sequestration are about 18 
per cent — in England, at least 45 per cent ; and as the trade, and 
consequently the bankruptcies, in England are very much greater 
than in Scotland, 35 jier cent is a low estimate of the average cost 
of each bankruptcy in the United Kingdom. In this way, a firm 
whose liabilities and assets balance one another — in other words, 
which is solvent — may, in a crisis like that of 1857, be not only 
forced to suspend, but have more than one-third of its assets swal- 
lowed up in bankruptcy expenses, and figure in the newspapers as 
paying only I2s. in the pound. Indeed, the magnitude of bank- 
ruptcy expenses is such, that the leading firms in the City seek to 
avoid driving their debtors into bankruptcy, and almost all the 
larger businesses are now wound up "under inspection," which is 
a less costly process. 



similar stoppage is produced of dozens of small firms 
in connection witli the large one : and thus panic 
spreads over the country. Commerce cannot go on 
without credit, — still less can banking. Commerce, 
indeed, is the first to suffer in times of crisis ; but no 
sooner do the merchants begin to reel, than the pres- 
sure is communicated to the banks. As merchants 
fail, the banks connected with them lose credit : also, 
bills at such times being in disrepute, more money is 
required : hence a run takes place for deposits. Every 
great failure, in fact, by the distrust and apprehension 
which it produces, is equivalent to a heavy draft upon 
the banks. The credit of commerce and of banking 
cannot be dissociated ; and any policy on the part of 
the banks which seeks to strengthen themselves by 
sacrificing the merchants, is alike mistaken and in- 

We have narrated the measures by which all the 
great commercial crises have been stayed during the 
last seventy years. It is curious to note some of the 
defensive manoeuvres by which banks have occa- 
sionally met a run upon them. The rush for money 
at such times is frequently so great that ordinary 
means are of no avail to meet it. Even if gold were 
there in plenty, but uncoined, its presence would not 
ward off disaster.* In 1826, although " the Mint was 

* The Mint, despite its admirable machinery, which is unique iu 
the world, cannot coin above fifty thousand sovereigns in a day. 


kept working night and day," money could not be 
coined with sufficient rapidity ; and as notes were 
taken as readily as gold, a chest of old one-pound 
notes was made use of in the emergency. To gain 
time at such junctures is everything. During the run 
upon it in 1720, the Bank of England employed a 
number of clerks to tell out, coin by coin, the money 
which was demanded, as well as that which was 
brought in ; so far as possible also, the Bank made 
payments in light shillings and sixpences, which took 
a great deal of time, and must have considerably dis- 
gusted the recipients ; and finally, it paid large sums, 
all deliberately counted, to friends of its own, who 
went out with the bags of money at one door, and 
delivered them to persons placed at another, who 
thereupon were let in (in preference to the real cus- 
tomers, who thronged the doors) to pay the same 
money to the tellers, who once more took ample time 
to count it over. During the run upon the Bank in 
1745 — a purely political crisis, caused by the advance 
of the Pretender and his Highlanders into the heart of 
England — the expedient of paying in sixpences was 
again resorted to by the Bank, as successfully as 

Such expedients are now out of date, they savour 

And as the workmen employed in the Mint are a select body, 
whose nimibers cannot suddenly be increased, the system of work- 
ing both night and day cannot be much resorted to. 





SO mucli of dodges. But we can give an example in 
recent times of how banks may most 
legitimately meet the effects of a run. 
In 1857, after the fall of the Western Bank, the 
other banks which have their central establishments 
in Edinburgh, seeing that the panic was assuming 
a most destructive intensity, resolved to co-operate 
strenuously in the support of each other. Accord- 
ingly> as fast as gold was withdrawn from the Union 
Bank and deposited with some of the other estab- 
lishments, it was immediately returned to the me- 
naced bank. And, thus, on that critical 12th of 
^N'ovember^ there was a double current of gold passing 
up and down Bank Street^anxious depositors carry- 
ing 'off their ;heavy bags in cabs, while steady bank- 
clerks with equal promptitude carried back the 
bags to the Union Company. There was a dash 
of the humorous in the operation, but no meas- 
ure could have been more beneficial alike to the 
banks and to the public. The proceeding, we need 
hardly remark, was perfectly legitimate. The banks 
to which the customers of the Union Bank transferred 
their accounts, became responsible for the sums thus 
deposited with them. That was a terminated trans- 
action. The lending of the gold by these banks to 
their menaced comrade was a separate affair — amply 
justified alike by the solvency of the establishment to 
which the loan was made, and by the advantage which 


resulted from it to all the banks, as well as to the 
community at large. Such united action on the part 
of the Scotch banks, if timeously commenced, is ade- 
quate to stop the heaviest run for gold which any panic 
can occasion. To withdraw money in gold is a cum- 
brous and anxious process. One would require a cab to 
carry away even £1000 in sovereigns. Moreover, no 
one is willing to run the risks attendant upon keeping 
a large sum of gold in his house or office. And hence, 
as happened in Scotland in 1857, money which is 
withdrawn from a bank, not for business purposes, but 
simply in consequence of distrust, is immediately de- 
posited with another bank. Indeed it is a curious 
fact that the greatest transfer of accounts from the 
Union Bank in 1857 was made to the Bank of Scot- 
land, which is only distant some two hundred yards : 
the panic-stricken bearers of gold evidently being 
anxious to be rid of their precious burden as soon as 
possible, and depositing it accordingly with the near- 
est of the other banks.* 

* The Westera Bank— whicli failed totally, although all its lia- 
bilities were discharged in full — had from the very outset of its 
career ignored the principles of Scotch banking. It advanced 
money upon securities which were either hazardous or not readily 
convertible — in this way obtaining higher rates than the other 
Scotch banks did ; and latterly its advances of this kind became 
so large that it may almost be said to have engaged in trade in 
the fashion of a Credit Mohilier. It was in difficulties in 1847, but 
was then supported by the other banks on the condition that it 
should bring its management into accordance with the ordinary 
pi-actice of banking, — a pledge which it never fulfilled. When its 



This procedure on the part of the Scotch banks was 
a true economy of capital, at a time when such eco- 
nomy was peculiarly called for. Credit, as we have 
shown, is the only possible means of economising 
capital ; and this operation of the Scotch banks was 
just an extension of credit, with a view to support a 
great establishment which was known to be perfectly 
solvent and prudently conducted. Such extension of 
credit to solvent firms is the true means of preventing 
or arresting a commercial crisis ; and it is especially 
applicable to maintain the credit of the banks. It is a 
defect of the English system of banks (if that can be 
called a system which is totally unsystematic), that it 

difficulties were renewed in 1857, it again solicited support from 
the Chartered hanks, and obtained it to the extent of £500,000. 
But the banks, very properly, would not sui)poi't it further. It was 
a mistake, however, on the part of the Chartered banks — a mistake 
which Mr Laurence Robertson, in his evidence before the Parlia- 
mentary Committee, seeks to palliate by alleging that " they were 
not precisely informed " of the position of the suspended banks — 
that they did not immediately offer to take the notes of the Western 
and City of Glasgow banks (the latter being a perfectly solvent 
establishment which for the moment only had to shut its doors) ; 
for they knew that the capital of the shareholders in these banks, 
every shilling of which was liable, was far more than sufficient to 
meet any uncovered liabilities. It was this temporary refusal on 
the part of the Chartered banks to take these notes, that converted 
the crisis into a panic : especially as it occurred at a season of the 
year when, according to the evidence of Sir George Clerk, the issues 
of the Scotch banks are for a day or two, owing to the requirements 
of the public, nearly 50 i)er cent above their usual amount. " After 
further consideration," said Mr L. Robertson, "the other banks 
resolved to take all the notes as they came forward ; and when that 
was done, the thing [panic] subsided." 


does not offer the facilities for co-operation and mutual 
support which are possessed by the Scotch banks. And 
hence, with all their immense resources, their machi- 
nery of resistance to a panic is clumsy and unreliable, 
compared with that of their northern rivals. In course 
of time, doubtless, order and system will arise out of 
the present chaos of English banking. The new joint- 
stock companies, with their headquarters in London, 
are gradually establishing branches in the provinces ; 
and it is to be hoped that, by the offer of suitable 
terms, many of the private banks throughout the 
country will consent to change their character, and 
become branches of the great banks in the metropolis. 
Not until this revolution is accomplished can an 
economy of capital be efficiently established among 
SYSTEM AXD *^^® English banks. All banking, un- 
co-opERATioN. doubtcdly, effects an economy of capital 
on the part of the public: what is now urgently 
called for is, that there should be a corresponding 
economy of capital effected among the banks them- 
selves. When great banks are established in Lon- 
don, with branches throughout the country, all 
acting harmoniously together, the fabric of public 
credit will be rendered as nearly proof against the 
shocks of panic as need be desired. The great burden 
of sustaining credit, which, in times of panic, is at 
present thrown entirely upon the Bank of England, 
will then rest upon a wider basis ; and a cordial co- 



operation among the banks will suffice to reduce tb' 
manageable proportions crises such as at present over- 
whelm the whole country with disaster. It is not 
more gold that is needed to fortify our banking sys- 
tem, — it is more System and Co-operation. 

But if we do not need more gold, at least let us 
have the use of what we possess. A large stock of 
the precious metal at present lies useless in this 
country, withdrawn from the purposes of banking 
and from the support of trade. "When we come to 
take a look at the Bank of England, we shall see both 
where this portion of our gold is, and why it is there. 


Note. — Before concluding this chapter, it may be 
well to show, by extracts from the newspapers of 
the time, how the news of the suspension of the Bank 
Act, in November 1857, was received by the com- 
munity — especially in the great centres of wealth and 
industry, e.g., London, Liverpool, Manchester, Birming- 
ham, Leeds, and Bristol : — 

London. — " The notification that the Directors had been 
empowered by Government to disregard the restrictions imposed 
on the issue of notes by the Act of 1844, immediately produced 
a powerful effect. The great discount-houses and other firms 
were enabled to procure a large supply of money from the 
Bank, and at once began to grant liberal accommodation to 
their customers, at some advance upon the Bank rate. The 


mercantile public, who had rushed to the Bank to procure large 
supplies of money, of which they had no actual need, have now 
become reassured, and hopes are entertained that the money 
market will assume a quieter appearance. On Friday the feel- 
ing in all conmiercial circles was decidedly better." — Economist. 

" An immediate effect was visible--^the Funds advanced, and 
the general remark was that the ' worst had passed.' So far as 
can be ascertained at present, the course adopted by the Gov- 
ernment and the Bank has germinated a feeling of confidence, 
which, if developed, must soon insure a return of ease and pro- 
sperity. Increased confidence is apparent in most departments 
of business, and the letters received from the country show 
that the symptoms which have followed the temporary suspen- 
sion of the Bank Act are as encouraging as could be desired." — 

" The letters received on Friday from the country indicate an 
extent of monetary disturbance and commercial excitement 
almost if not altogether unparalleled, and it is fearful to con- 
template the ruin which would have resulted from the postpone- 
ment of the expected relief for even one or two days. On 
Friday money circulated much more freely in the discount 
market, and, in consequence, there was witnessed the expected 
and satisfactory circimistance of decided diminution in the de- 
mand at the Bank of England." — London Express. 

Liverpool. — " To such a dead-lock had business matters 
arrived on Thursday, that the Committee of the General 
Brokers' Association gave notice that they would be obliged to 
discontinue for the present the issue of their daily market 
receipts. The Council of the Chamber of Commerce met on 
Thursday, to take into consideration the present monetary 
crisis, and it was agreed that a deputation, consisting of the 
Mayor, Mr C. Bushell (President of the Chamber), and several 
other gentlemen, should go up and have an interview with 
Government on the present state of the monetary affairs of the 
country. Shortly before four o'clock in the afternoon, how- 
ever, a rumour became current on 'Change, and spread like 
wildfire in every direction, that the Bank of England had been 
authorised by Government to suspend its Act. In place of 



features of t"he most gloomy despondency and forebodings, all is 
now exhilaration, and the panic is generally believed to be at an 
end." — Times. 

Manchester. — " The virtual suspension of the Bank Charter 
Act has calmed j)ublic feeling on commercial matters consider- 
ably, and we have had a more cheerful and hopeful feeling in 
the market." — Times. 

Birmingham. — " A meeting of the merchants of Birmingham, 
for the purpose of supporting the views of the Glasgow mer- 
chants, was contemplated, but we presimie that this communi- 
cation from Government to the Bank Directors will render it 
unnecessary. There can be no doubt that the proposed measure 
will greatly relieve the manufacturing interests, and that in this 
respect the local trades of Birmingham will largely participate." 
— Birmingham Mercumj. 

Bristol. — " The intelligence that Government had authorised 
the Bank of England to extend its issue of notes upon securities 
was commimicated on Thursday afternoon. The gloom which 
had been caused among commercial classes by the disastrous 
advices of the morning was at once dispelled, and the general 
feeling was that the right step had been taken at the right 
time for preventmg the ruinous consequences of a monetary 
panic. The change in the aspect of commercial matters here 
within the last twenty-four hours is very gratifying." — Times. 

Leeds. — " The measure of relief afforded by the Government 
is approved both by the local press and the commercial com- 
munity generally ; and though the business transacted in the 
market this morning has shown no improvement, there has 
been greater firmness and a more hopeful feeling expressed." — 


London", as every one knows, contains a city within a 
city; and within that inner city there is yet another, 
the very heart of the metropolis. It is a small place. 
In a couple of minutes you may walk across it from 
side to side, from end to end. Yet it is the centre and 
citadel of our greatness — the heart whose pulsations 
are felt to the farthest extremities of the empire. 
There is to be found concentrated the spare capital of 
the nation ; and from thence it flows forth, as from 
a fountainhead, in irrigating streams, to extend in- 
dustry and increase employment and produce every- 
where. There, our traders and producers obtain the 
loans and advances by means of which they carry on 
their immense business. There, lie concentrated the 
sinews of material strength alike in peace and in war. 
The occupants of the precinct have dealings with aU 
the world ; and from thence proceeds the power which 



helps on the civilisation of the globe. The railways 
which accompany the ceaseless advance of the White 
race into the prairies of the Far West of America — the 
companies which explore and develop the resources of 
California and Australia — the iron roads and irrigating 
canals which are maturing the prosperity of India — 
the enterprise which covers with tea-plantations the 
valleys and slopes of the Himalayas, and which carries 
our countrymen into new regions everywhere — are 
created or sustained by the ongoings in this little 
spot in London. The wastes of Hudson's Bay — 
trading companies for the Mle — the cotton-planting 
which is invading Africa — ocean-lines of steam-ships, 
submarine telegraphs connecting dissevered continents, 
water- works for Berlin, gas for Bombay — these and 
a hundred other matters and projects engage the 
thoughts and employ the capital which is at the 
command of this busy hive of operators. Almost 
every country is included in their operations, and 
almost every State is in debt to them. From gigantic 
Russia to petty Ecuador and Venezuela, they hold the 
bonds of every Government — Persia, China, and Japan 
alone being excepted. 

Prosaic as the operations of the precinct are in de- 
tail, taken in the mass they constitute a grand work, 
and may be followed as a noble as well as an honour- 
able profession. Daily and hourly it is the business of 
the occupants to scan in detail the condition of the 


world. They weigh the influence of the seasons, they 
investigate the produce of all manner of harvests — 
they know the condition of every mine, the prospects 
of every railway, the dividends of every company. 
They are ever feeling the pulse of Trade, and watching 
the course of Politics. They ponder the chances for 
the maintenance of peace or for the outburst of war ; 
and when war is on foot, they follow the fluctuations 
of the contest with as keen an interest as either soldier 
or statesman. Everything concerns them that affects 
the condition of countries or the solvency of Govern- 
ments. The very spirit and temper of nations, re- 
bellious or loyal, warlike or industrious, is canvassed 
in that busy mart. It is no exaggeration to say that 
the progress of mankind is mirrored in the operations 
of this monetary metropolis. It is a city of money- 
dealers — a sanctuary of Plutus ; a place where men 
think only of profits, and yet accomplish more good 
tlian all our philanthropists. Blot out that inner heart 
of London — paralyse the operations of that busy hive 
— and the whole world would feel the shock and suffer 
from the calamity. 

London is best seen from the top of an omnibus. 
Hail one of those vehicles as they roll in ceaseless 
stream along the Strand and Fleet Street, — yield to 
the solicitations of the conductor who with uplifted 
finger calls out " Bank ! Bank ! " — and, mounted on 
the top, proceed eastwards to view the metropolis of 



Gold. Passing under the shadow of St Paul's, which 
towers above you like a splendid mountain of stone, 
you enter Cheapside, and with slow and halting course 
your vehicle wends its way through the currents of 
human life seething and battling in the too narrow 
street. The din is so great that even the famed Bow 
Bells, as they ring out from the elegant spire overhead, 
hardly make themselves heard. At length you reach 
the Mansion House, the civic palace of London, w^hose 
festivities are known unto all men, and especially 
to aldermen, — and your omnibus stops on the very 
threshold of the City of Gold. ^| 

Magnificent buildings rising aloft on all sides show 
that you have reached a peculiar precinct. A wide 
open space is before you, which seems, as you look 
down from your elevated seat, as if paved with the 
tops of omnibuses, cabs, and vehicles of all kinds, 
making their way through a black mass of busy 
humanity. No longer pent up in the defile of Cheap- 
side, the current of busy life here branches out into 
many channels. To your right it pours down Lom- 
bard Street, and towards London Bridge, — the entrance 
to which you see marked by the tall column of the 
Monument, rising against the blue sky of this sunny 
day in June. To the left, the current spreads through 
Princes Street — to or from Lothbury and Moorgate 
Street, which lie out of sight, hidden by the solid 
quadrangular mass of the Bank. In front, the busy 



throng is pouring along the wide channels of Cornhill 
and Threadneedle Street, leading eastward from where 
you stand ; and in an island between these two chan- 
nels rises aloft, like a rocky promontory, the pillared 
front of the Eoyal Exchange. Stretching out in front 
of the Exchange there projects, almost to where you 
are, a triangular expanse of pavement — like a spit 
of sand — over which the wavelets of human life, the 
spray of the deep currents which roll around, are 
ceaselessly washing and intercrossing. Watching a 
favourable moment, dart through the perilous stream 
of vehicles and foot-passengers which separates you 
from that haven of rest, and take your stand (getting 
the mud brushed from your boots the while by one of 
the red-coated members of the Shoe Brigade) beside 
the equestrian statue of the Great Duke. As you 
look up at the bronze figure of the old warrior, you 
remember his saying, that " High interest means bad 
security." You think, too, of the words once placarded 
all round where you stand, " To stop the Duke, run 
for Gold !" And you begin to think that, after all, 
the site of his statue is not so inappropriate as at first 
you felt it to be. 

But circumspice ! The Eoyal Exchange, with its 
high pillared portico, surmounted by an entablature 
in which symbolic figures are crowded together as 
densely as are the living crowds below — with its wide 
archways of entrance, and large inner court open to 



the sky — looks gay, affable, and accessible, — a place 
of easy and lively resort, savouring (as the Greek style 
of architecture usually does, whether in palace or in 
temple) of a sunny everyday world. As you look 
across Threadneedle Street, the low, heavy quadran- 
gular structure of the Bank creates a very different 
impression. It has an imposing look ; and the dead 
wall all round, scantily relieved by short pillars let 
into the front, almost wdndowless and doorless, be- 
speak a sombre, jealously-guarded sanctuary. It is 
the treasure-house of Plutus, the sovereign and deity 
of the precinct. You feel an awe and sombreness in 
the facade, very accordant with all our notions of the 
Old Lady of Threadneedle Street. While thinking of 
its wealth and power, you think also of dishonoured 
bills, and of the gloomy courts in Basinghall Street, 
— even as the Palace of the Doge reminds one of the 
Bridge of Sighs and the prisons beyond. 

These two buildings, which far surpass in size any 
of the surrounding edifices, fitly represent respectively 
the two powers, or agencies, whose conjoint action con- 
stitutes the life of this busy little world. The Bank 
represents money — the Exchange represents trade. 
Generally they act in harmony — sometimes, however, 
in rivalry ; but at all times they deeply affect one 
another. A panic on 'Change makes a crisis at the 
Bank — a crisis at the Bank makes a panic on 'Change. 
They are like brother and sister. But Money is the 

3 1 



stronger : it is the male principle — sombre and power- 
ful. Trade is the female — gay, lively, and various in 
its forms ; but dependent for its fertility upon money, 
and at times subjected by it to a cruel bondage. You 
will not be long in the neighbourhood before you find 
what vast issues are dependent upon the presence of 
Gold in that solid building in Threadneedle Street. 

The mightinesss of these two powers, which to- 
gether hold sway in this little precinct, is evidenced 
to the eye by the stateliness of the capital which they 
have here built for themselves. All great phases of 
national life find expression in architecture. The 
present is peculiarly an age of money and of monetary 
trade ; and Banks and financial companies adorn this 
sanctuary of money-dealers with conspicuous edifices. 
The place looks like an Acropolis — a civic citadel — 
a peculiar precinct, where palatial edifices, clustering 
together, rise in close contact, and in marked contrast 
with the ordinary buildings of the city. Brick and 
dinginess give place to Portland-stone, iron-palisading, 
and highly -burnished door-panels. Banks, credit- 
companies, discount - houses, insurance - offices, are 
yearly raising for themselves fine premises ; and the 
area of the golden metropolis is gradually extending 
itself at, the expense of the meaner districts which Stand at the north-east corner of the 
Eoyal Exchange, and you are in the centre of the 
precinct. From that point a radius of three hundred 



yards will include the whole locality. Princes Street 
and Lombard Street bound it on the west and south ; 
Lothbury and Throgmorton Street on the north ; while 
to the east, beyond Birchin Lane and Finch Lane, 
it gradually merges in the region of the produce- 
markets and shipping-offices. Such are the narrow 
limits of this City of Gold, — a precinct which rises 
like an oasis of commercial palaces in the heart of 
London, and in which is concentrated an amount of 
wealth and power unrivalled elsewhere in the world. 

The Eoyal Exchange, with its wide expanse of 

pavement alike in front and in rear, forms an islet 

amidst the rushing thoroughfares around. 


On these paved open spaces groups may 
be seen standing engaged in absorbing conversation. 
But all around nothing is to be seen but motion 
and bustle. The streets are thronged with hurry- 
ing vehicles ; the foot-pavement with bustling but 
steady -going passengers ; the alleys, like Birchin 
Lane and Finch Lane, which connect the leading- 
thoroughfares, are equally thronged ; and hurrying 
steps are ever racing through those covered pass- 
ages, lined with ofiices on either side, which form a 
peculiar feature in this part of London, and before 
whose entrances the stranger naturally halts, fearing 
to trespass on what seems, and indeed is, private 
ground. Young men and old men ahke are seen 
hurrying to and fro, and all appear absorbed in their 

CITY MEN. 129 

work. You may easily tell the office-clerks, racing on 
their errands to learn the latest price of some par- 
ticular stock, from the less mobile but more absorbed 
seniors of this busy world. Engrossed as all are, you 
nevertheless see (in ordinary times at least) that theirs 
is not a sad work. The sight, in truth, is rather dis- 
appointing to a stranger who has heard of the cares of 
wealth and the deceitfulness of riches. As he looks 
upon the men who go past him, the sight does not 
realise the conception of " City " life which he has 
formed from books or from his own imao^ininos. He 
looks in vain for the haggard look and care-worn 
features which he has learnt to associate with City 
men, and especially with the dealers in money. 
Overburdened, no doubt, some of these men are occa- 
sionally — and in what trade or profession is it other- 
wise ? — but, on the whole, they wear a more lively 
and cheerful look than any other set of business-men 
we have seen. Tliey are intent on their work ; they 
have no time to stand and parley with you ; but they 
go about their business with liveliness and zest. You 
never hear the slow monotones of depression: their 
voices are quick and lively, and a laugh and a bit of 
badinage are seldom quite absent as they fly about in 
search of information or in execution of commissions. 
They dress well, in the substantial style — and a gold 
chain across the waistcoat, or a flower in the button- 
hole, are their favourite and not very conspicuous 




modes of personal decoration. Sometimes, indeed, you 
will see the gay-coloured neck-scarf, buttoned surtout, 
white waistcoat, and light gloves, familiar to you in 
Pall-Mali and Piccadilly ; for even the West-end swell 
nowadays ventures into the vortex of financial spec- 
ulation ; but he looks a butterfly among the busy 
throng, and his air (as doubtless he wishes it to be) 
is quite different from that of the habitues of the 

Nothing more conduces to preserve youthfulness than 
a considerable amount of mental activity. The alert- 
ness and vivacity of the mind transfer themselves to 
the personal appearance. And, despite all the worry 
and anxieties which these money-dealers and specula- 
tors are supposed to, and sometimes do, undergo, they 
wear better, and keep their youth longer, than the 
farmers and provincial classes generally. There is no 
sauntering here ; and men of threescore and upwards 
step out as lightly as men of half their age in provin- 
cial places. In truth, it is the elderly gentlemen who 
show to most advantage in this monetary metropolis ; 
and ever and anon you meet with the fresh clear com- 
plexion, pure white whiskers, and brisk look and move- 
ment, which characterise the best specimens of our 
elderly English gentlemen. It seems a healthy as well 
as exciting pursuit which men ply in this precinct of 
Mammon. Even the speculators 'par excellence — men 
who are rich to-day and poor to-morrow — as a class. 



live for the bright side of the picture, and look as if 
they did so. 

It is curious to note how the tide of business and 
population ebbs and flows in this peculiar precinct. 
THE CITY "^^^^ busiest and most crowded place in the 
AT NIGHT, ^orld for half-a-dozen hours of the day, it 
thereafter becomes almost a solitude. Except in Corn- 
hill, where shops have not yet been wholly supplanted 
by offices, the precinct after sunset relapses into dark- 
ness. At nine in the morning, the omnibuses begin to 
deposit load after load of passengers at the corner of 
Cheapside, opposite the Mansion House; while Hansom 
cabs and private broughams convey to business the gran- 
dees of the place. And during the next six or seven 
hours vehicles of all descriptions ply to and fro the pre- 
cinct. But between five and six o'clock the daily exodus 
begins. Bankers, brokers, speculators, clerks, and direc- 
tors alike, all rush off homeward, out of town it may 
be, or to distant suburbs ; and the Golden City be- 
comes wholly silent, dark, and solitary. In the moon- 
light, this solitude of palatial edifices looks even more 
grand and imposing than by day ; but the currents of 
busy life no longer flow between the towering piles, 
and the streets seem like river-beds which have sud- 
denly been left dry. On Sundays, the solitude and 
apparent desolation are still more conspicuous. Hardly 
any one lives in the precinct save the porters left in 
charge of the offices. The churches, accordingly, are 



almost empty. It is only when some highly-gifted 
preacher is appointed to the locality that the pews be- 
come filled — a rare occurrence — by persons drawn from 
other parts of London. Some of us can recollect the 
time when Dr Croly, in his heyday, drew crowds to 
the fine church of St Stephen's, Walbrook, at the back 
of the ]\Iansion House, and when his noble oratory and 
high intellect converted the solitude of empty pews 
into a crowded and attentive audience. There, for 
years, he lifted up his voice like one preaching in a 
wilderness. The emptiness of the churches in the 
precinct, however, is simply the result of there being 
no parishioners of the class who ordinarily attend 

Banks form the most conspicuous architectural 
feature of the precinct. And naturally so, for with- 
out them trade and financial operations 
could not acquire the remarkable develop- 
ment which is here to be witnessed. They are the re- 
servoirs of the place, into which flows the spare money 
of the nation, and out of which flow the monetary 
streams which set agoing all the other operations of the 
place. Besides the Bank, which in external appear- 
ance, as well as in real power, throws into the shade all 
its compeers, we see conspicuous among the others the 
large building of the London and Westminster Bank, 
facing on the other side of Lothbury its old ojjponent 
the Bank of England, — the huge but unattractive fabrics 




of the Union and London Joint-Stock Banks in Princes 
Street, — the London and County Bank in Lombard 
Street, — and the handsome pile of the Oriental Bank. 
Next in importance, as architectural features of the 
place, are the Insurance Offices, — and chief among 
these, the Sun, the Imperial, and North British, all 
in good sites in Threadneedle Street. In the third 
rank — and soon likely to take a higher place — are the 
offices of the Discount-houses and new Credit com- 
panies : the massive and costly edifice of the National 
Discount Company in Cornhill, occupying the first 
place in point of architecture ; while in Lombard 
Street, the great discount-house of Overend, Gurney, 
& Co. (familiarly called "the house at the corner") 
and Hanbury's bank, face each other at the foot of 
Finch Lane ; and in Lothbury are the offices of the 
two giant credit-companies, the " General " and the 
" International Land Credit." 

Every year some of the old establishments, banks or 
others, are building for themselves finer edifices. They 
feel a necessity not only to be prosperous, but to adver- 
tise their prosperity by architectural display. There is 
a rage for Portland stone and polished granite pillars ; 
and the movement in favour of external display is pro- 
ceeding to an extent which has excited considerable 
criticism and distrust among the older and more cau- 
tious grandees of the locality. Perhaps the " old fogies " 
are right, if we judge from a London point of view, — for 



London architecture (we except the line old churches) 
is a very poor affair compared with the wealth of the 
place. At the same time it is only truth to say, that 
none of the London banks, save the Bank of England, 
can compete in architectural beauty, whether internal 
or external, with the half-dozen leading banks in Edin- 
burgh. The Modern Athens is a dream of beauty in 
stone: externally, at all events, it is a city of Fine 
Art, — a place where the marvellous picturesqueness 
of Nature has made the inhabitants intolerant of 
commonplace architecture in their street and public 

The classification which we have made of the edi- 
fices of this monetary metropolis is likewise applica- 
ble to the population — to the busy crowds whom we 
see rushing to and fro — and to the pursuits which 
they follow. Let us see what is the style of business 
which each of these classes carries on. We shall find 
that they are all closely connected — integral parts of 
one great system of monetary trade, — and that the 
line of demarcation between some of them is not 
drawn with sufficient sharpness to be readily percep- 
tible to the uninitiated. 

Let us describe first, generically, the leading opera- 
tions of the Banks. The fundamental part of their 

business is to receive deposits of money. 

They take money into safe keeping, and 
they manage it in such a way as to meet the require- 



ments of the depositors. They give the depositors 
cheque-books, blank forms of drafts upon the bank ; 
and whenever one of those cheques is presented, either 
by the depositor or by any one to whom he has made 
it payable, the bank hands the money across the 
counter, in notes or in gold as may be demanded. In 
some cases the banks give interest on the sums de- 
posited, in others they do not: and the Bank of 
England does not pay interest in any case.* The 
next part of the business of banks is to recompense 
themselves for this management of their customers' 
money, by employing at usury the balance of the 
deposits which is not likely to be called for by the 
depositors. This balance amounts in ordinary circum- 
stances to more than nine-tenths of the whole money 
deposited with the bank. When trade is stagnant, this 
balance is at its highest amount ; when trade is brisk, 
or when credit is shaken, it is at its lowest. A bank, 
in short, must mark well the signs of the times in 
order to know the exact amount of the deposits which 
may be safely lent out. If too much be lent out, the 
bank is embarrassed in meeting the demands of the 
depositors ; if too little be lent out, the bank loses 
its profit on the sum thus needlessly kept on hand. 
Having determined what portion of the deposits is not 
likely to be called for, the bank invests or lends out 
at interest this sum in various ways. First of all, it 

* For other details connected with banking, see supra, pp. 66-88. 



invests a portion in the purchase of Consols — a spe- 
cies of security which is of all others the most steady 
in value, and the most readily negotiable ; in other 
words, which can be most readily sold and recon- 
verted into money. Next, the bank makes advances 
to its customers. Any one who has an account with a 
bank may, in ordinary times, by tendering Government 
or other good stock, obtain a temporary loan on that 
security to the amount of three-fourths of its current 
value. But the most extensive kind of advances made 
by the banks is in the discoimt of commercial bills. 
A customer of the bank has a bill, or bills, falling 
due say three months hence ; but by taking them to 
the bank he deals with, he can get cash for the full 
amount of these bills at once, minus three months' inter- 
est on that amount. In extraordinary cases, the banks 
— and especially the Bank of England, the great 
fountainhead of credit — will make advances to some 
large firm or company whose position is solvent, but 
which is in temporary embarrassment. In this case, an 
agent of the bank examines the books of the firm, sees 
what are its assets, and decides what amount may 
safely be lent to it. " The whole principle of bank- 
ing," said Lord Overstone in 1840, "is to transfer 
capital from the inactive accumulator to the active 
and energetic person who wants capital," — even 
though these persons " in some cases have no secu- 
rity to give, except that best form of security, their 
character, their energy, and their prudence." The 


advances made on these various forms of secnrity — 
viz., stocks, commercial bills, or in aid of wealthy but 
temporarily embarrassed firms — are for considerable 
periods ; say, on the average, three months. But there 
is a portion of the banks' deposits which it would not 
be prudent to lend for such periods, yet which may be 
safely lent for a week or a day. The great point in 
banking is to see that every pound which is not 
needed by the depositors is profitably employed. Each 
day there is a surplus available for short investments. 
What is done with it ? 

It is handed over to the bank-brokers, who may 
be called money-brokers pure and simple. This is 
MONET- another class of business. These men are 
BROKERS. ^Yie intermediaries between the banks and 
the various other institutions, companies, or indi- 
viduals who flourish in this monetary precinct. It is 
the duty of these bank-brokers — whose position is 
most onerous, and who are few in number — to employ 
the sums at their disposal in loans at call, or for a 
week, or a single day. Their vigilance must be un- 
ceasing. Tliey have to keep their eye on the expiry of 
each of those brief loans, renew it, or find a new invest- 
ment for it ; and when a change in the rate of discount 
takes place, they are on the trot the whole day, alter- 
ing their terms and making new bargains on the foot- 
ing of the change. To lend money for a single day, 
when the rate of interest is at (say) four per cent per 



annum, may seem to an outsider a very infinitesimal 
operation — one which would not repay the cost and 
trouble connected with it. But sometimes these bank- 
brokers have three or four millions sterling to dispose 
of: and the interest on that sum for a single day 
amounts to £330 or £400. By neglecting these daily 
loans — by letting the amount which can be safely 
employed in this manner (the surplus on the day's 
proceedings) lie inactive in their coffers, the London 
banks would lose £100,000 or £150,000 a-year ! 
The bank-brokers of course get a commission on their 
work — a small percentage ; and as one of these brokers 
has been known to have had £2,000,000 pass through 
his hands in a single day, their business is as lucrative 
as it is onerous. But to whom, to what parties, are 
these very short loans made ? Who is it that is ready 
to take money on loan for a single day ? 

To some extent these loans are made to all the 
other sections of the community in this monetary 
DISCOUNT- precinct. It is only to its own customers that 
HOUSES. g^ bank discounts bills, or makes advances 
on stock, &c.; but the daily surplus which is distri- 
buted by the bank-brokers is lent to any suitable par- 
ties, without distinction, who may desire to have some 
of it. Nearly all of it, however, is taken up by the 
Stock Exchange and the Discount-houses — the latter 
of which establishments rank next in importance to 
the banks in this city of money-dealers. The dis- 


count-liouses do not receive money in deposit as the 
banks do ; tliey do not issue cheques, or undertake 
the management of money for customers. They re- 
ceive money, not in deposit, but on loan. They take 
short loans, for a week or a fortnight, or " at call," — 
paying interest, of course, on all sums thus received. 
In this way the discount-houses offer a good means of 
investment for sums which could not otherwise be em- 
ployed to equal advantage — namely, for sums which 
the owner has on hand merely for a few days. For 
example, a man who has money invested in some par- 
ticular kind of stock or shares, and who thinks it advis- 
able to sell out at once, with the view of re-investing his 
money in some other form, may have that money on 
hand for a week or two, waiting for a favourable op- 
portunity of re-investing it. Instead of keeping it on 
hand, he lends it to a discount-house, and receives a 
high rate of interest on it, till he is ready to use it 
again. The daily surplus of the banks, as we have 
said, is also employed to a great extent in this way. 

The money thus obtained on loan, as well as the 
private capital of the discount-houses, is employed by 
these firms in discounting commercial bills. And as 
they do not require to keep money on hand, like the 
banks, to meet the wants of depositors — as all their 
money, in short, is fully employed at interest — the 
discount-houses can afford to discount bills at a rate 
slightly lower than that of the Bank. The cashing of 



bills is their special and only business, and they get a 
very large share of it. The main principle which they 
have to observe is this : They know the amount of 
their private capital, and the amount of money which 
they may reckon upon receiving on loan from the 
public, on the one hand, and, on the other, they know 
the average term of the bills which they discount 
(say three months); they then discount to the full 
amount of their resources, — taking care, thereafter, 
that the amount of bills which they discount shall be 
balanced by an equal amount of bills " running off," 
i. e., falling due. If the state of the money market 
renders it advisable for them to increase their reserves, 
they have only to lessen the amount of the bills which 
they discount, and in a single week their cash on hand 
is increased, in consequence of the bills falling due to 
them being in excess of the amount which they are 

To discount a bill is to purchase a debt falling due 
at a specified time. Ordinary commercial bills are as 
good as money : and the entire portion of what figures 
in the returns of the joint-stock banks as "deposits" is 
held by these banks in the form of commercial bills 
which they have discounted. The money deposited 
with a bank is employed in the purchase of these 
bills, and the rate of discount charged upon them 
is a chief source of bankers' profits. If a firm 
which has purchased a bill (by discounting it) is in 


need of ready cash, money can be obtained by re-dis- 
counting the bill — {. e., selling it to a bank or other" 
party which deals in that kind of business. And 
every time a bill is thus paid away, the more solid 
does its value become; because every party through 
whose hands it passes endorses it, and becomes security 
for its ultimate payment. In this way, bills to some 
extent become part of the currency, circulating from 
hand to hand in payments which would otherwise 
have to be made in cheques, notes, or gold. 

As every discount-house keeps an account at a 
bank, it can (if in temporary need of money) take some 
of the bills which it has discounted, and get them re- 
discounted at the bank with which it deals. Some years 
ago, however, the Bank of England refused to treat the 
discount-houses on the same terms in this respect as 
its ordinary customers. They are rivals of the Bank 
in the discounting line, and manage to get the lion's 
share of the business ; and the Bank, with consider- 
able justice, said: — "We have to keep on hand reserves 
to meet all demands that can be made upon us, whereas 
you trade to the full extent of your resources : in this 
way you make larger profits in ordinary times than we 
can do ; and it is rather too much, when you become 
embarrassed by so trading, to come upon us to help 
you." The discount-houses are the great rivals of the 
Bank ; and whenever a monetary crisis takes place, a 
great deal of bitter feeling arises between them ; and 



the Bank is seldom loth to see one of these riva' 
lishments brought to the ground. ^i 

Let us now come to another important branch of 
business carried on in this precinct. Let us enter 
THE ROYAL ^^^ Eojal Exchaugc. For the greater part 
EXCHANGE. q£ evcrj day a stranger will be at a loss 
to discover for what purpose so -fine an edifice was 
erected. As he enters the central court, the place 
looks deserted — only a few loungers, looking neither 
very business-like nor respectable, sauntering or sitting 
beneath the verandah. One may guess that some of 
those people have met here by appointment, as a con- 
venient rendezvous ; and what the others are waiting 
for, it is not easy to see. On the afternoon of Tuesday 
and Friday, however, the scene is very different. All 
idlers are then excluded, but any one may enter who 
has business to transact. The Eoyal Exchange be- 
longs to the City, as represented by the Gresham Com- 
mittee, and the public has full right of entry on 
the simple condition that they come there on business 
and not as idlers. The business consists in the buy- 
ing and selling of " bills of exchange," i. e., orders for 
money payable in foreign countries, — bills on China, 
India, Egypt, Paris, Hamburg, New York — on all the 
chief seats of commerce. A merchant who has to pay 
a sum of £10,000 in Calcutta, instead of sending 
specie, goes on 'Change and buys bills to that amount, 
which he transmits at the mere expense of postage. 


The price of these bills of exchange is regulated by 
two considerations. First, there is the length of time 
a bill has to run. If it is payable four months after 
date, it is of course less valuable than one at three 
months — the discount, or rate of interest, in each case 
having to be deducted. But the value of these bills is 
also affected, like everything else, by the amount of 
supply and demand. If the amount of bills upon 
Calcutta happens to be greater than the amount of 
money which requires to be sent thither, the bills may 
be purchased at a fraction below their normal value ; 
but if the payments to be made in Calcutta exceed the 
amount of the bills, then a competition for the bills 
ensues, and their price is slightly enhanced. But the 
range of variation never exceeds the difference between 
the cost of postage on the one hand, and the expense 
and inconvenience of transmitting specie on the other. 
The normal price of a biU, as we have said, is simply 
the amount of the bill, minus the discount on the time 
it has to run. Accordingly, by means of these bills of 
exchange, the whole cost, risk, and inconvenience of 
collecting and transmitting specie from one country to 
another is saved. And this saving is really an im- 
mense one. If the payments of commerce had to be 
sent backward and forward from country to country, 
not all the specie in the world would suffice to carry 
on operations so vast. If the agency of bills were 
suspended for a few months even between England and 



India, the drain of currency would speedily produce a 
deadlock in botli countries. Sucli is the importance 
of the operations in the Royal Exchange ; and there 
are no others, even in this Capitol of money and trade, 
which display in so remarkable a manner the im- 
mense extent of British commerce, as well as the skill 
and mutual good-faith with which its operations are 
carried on.* 



The operations on the Stock Exchange are of quite 
a different nature. The property there dealt in is 
stocks and shares of all kinds ; Govern- 
ment securities, ranging in solidity from 
British consols, the steadiest of all, to Greek coupons 
and Spanish passives, — railway shares, mining shares, 
and shares and bonds of joint-stock companies of all 
kinds. In these the public invests its spare capital, 
and the transfer of these stocks from one hand to 
another, by buying and selling, is so great that the 
daily transactions frequently amount to several millions 
sterling. The commission upon these transactions — 
which varies from one-eighth of a per-cent on the sale or 
purchase of Consols, to one-fourth of a per-cent on the 
dealings in other and more variable kinds of stock — 
amounts to a large sum ; and this sum constitutes the 

* In the financial year 1862-3 the number of stamps used for bills 
of exchange was 5,501,498, — of which number 1,961,602 were for 
foreign bills. Of this number, 6740 of inland bills, and 4288 of 
foreign bills, were drawn for sums of upwards of £4000 each. 


profits of the stock-brokers, who conduct these sales 
and purchases for the public. A stock-broker ought 
not to deal or speculate in stocks at all. He is simply 
the agent by which such sales and purchases are 
effected. And if he himself becomes a dealer (as not 
a few of the second and third rate brokers do), the 
persons who employ him have no security that their 
interests will be properly attended to. He may buy 
for himself the stock wliich they commission him to 
sell ; and in such a case it is not to be expected that 
he will give for it the highest price that can be ob- 
tained. But the stock-brokers are not the only parties 
in the Stock Exchange. There are also the stock- 
jobbers — men who deal in stocks and shares, selling 
them at the highest price which they can get, and 
buying them at the lowest. 

The entrance to the Stock Exchange — or Capel 
Court, as the large room is called where these opera- 
tions are carried on — is through a pillared front, 
or portico, facing the east end of the Bank. But it 
has other entrances. We remember the first time we 
stumbled upon this sanctuary of jobbing — upon this 
forbidden ground to the public, or to any one who is 
not a member of the brotherhood who carry on their 
operations here. Seeking a short cut from the eastern 
part of Threadneedle Street into Throgmorton Street, 
we entered an alley not so private-looking as many 
which in this precinct connect one thoroughfare with 




another. Men were passing along it to and fro, and 
we did not doubt we should quickly emerge in Throg- 
morton Street. But suddenly it assumed the appear- 
ance of a cul-de-sac, and we found ourselves at the 
doors of a large hall, full of people and of a clamour 
of tongues. A porter was at the door to keep out the 
profane vulgar: and the room into which we were 
looking, both through door and window, was the 
Stock Exchange. This place of business is the pro- 
perty of a corporation ; and, unlike the Royal Ex- 
change, no one can come there to sell or buy unless 
he be a member of the corporation. It is for its own 
members that the Stock Exchange reserves all the 
profits on the traffic which goes on within its walls. 

The business of the stock-broker is simple enough, 
and if he have good connections, it is as profitable as 
it is easy. When he gets an order to execute, all he 
has to do is to buy or sell at the current rate. He 
steps into Capel Court, and at once finds the dealers 
he wants. Every ^iook-johher has a special line — one 
deals chiefly in Mexicans, another in Indian stock, 
and so on ; and, moreover, there are places in the 
room where certain kinds of stock are specially dealt 
in. The broker finds the jobber, and, after ascertain- 
ing that the terms offered are in accordance with the 
ruling price, he makes the bargain, and in five minutes 
the business is over. The money, whether given to 
him to make a purchase, or received as the proceeds 


of a sale, passes througli the hands of the broker, who 
deducts from it his commission, the cost of stamp or 
registry, &c. 

The business of the jobber is a much more difficult 
one. He is, in fact, a speculator. He buys stock in 
the hope of selling it again at a higher price. It 
is therefore indispensable that he should carefully 
examine the character of the stock in which he deals, 
and the circumstances, whether political or commer- 
cial, which from day to day affect its value. He 
knows that the value of stock, altliough substantially 
dependent upon the soundness of guarantee and the 
rate of interest which it yields, is nevertheless affected 
from day to day by what may be called merely moral 
influences — by passing gleams or shadows, flitting 
prejudices it may be, which affect the popularity 
though not the permanent value of the stock — or 
merely from sympathy with the rise or fall in other 
stock of a similar character. The public has neither 
the leisure nor the knowledge sufficient to judge with 
confidence, and is generally more encouraged or de- 
pressed by the rumours or facts of the day than there 
is reason to be. All these things the jobber has to 
take into account ; and as it is no easy matter to be a 
prophet, he must either be a lucky or a clever fellow 
if he does not sometimes come to grief. Great gains 
usually alternate with great losses in this kind of 
business. One would think these jobbers would soon 




die of worry and anxiety, — and often enough they are 
to be seen very down-in-the-mouth. But Nature is 
kind, and fits the back to the burden. Or rather, 
most of these men have been born with the peculiar 
temperament of the speculator: they have an extra 
amount of hopefulness, and get through life, with 
more excitement indeed, but hardly with less equa- 
nimity, on the whole, than any other men engaged in 

The most novel feature in the economy of capital 
during the last year or two, has been the establish- 
ment of great credit companies. The 
special object of these companies is to 
provide money for carrying out industrial or financial 
enterprises which are worthy of support. The credit 
companies do not directly engage in these enterprises : 
they simply launch them, or at least provide the 
capital requisite for carrying them on, — charging a 
commission for their aid. One of these, the Interna- 
tional Land Credit Company, is worthy of notice here, 
because its operations display in a remarkable manner 
the system of financial co-operation which is now 
being established throughout Europe, as weU as the 
great amount of social good which may be effected on 
the mere principle of self-interest. There is no safer 
security than land; but the prime requirement in 
financial operations is, that the security should not 
only be perfectly safe, but readily negotiable. In 


otlier words, the bonds, representing the money ad- 
vanced, should not only be certain to be paid when 
due, but the holders of them should be able to sell 
them easily, or get money advanced upon them. 
Not one, but several financial establishments are 
needed to accomplish these ends on a large scale; 
and the International is the last and crowning 
company of a series previously established. It will 
deal with land everywhere, but at present its field 
of operations is in Austria. In Austria there are 
estates of immense size, held by individual proprietors, 
many of them heavily burdened with mortgages con- 
tracted on the most usurious terms. Half-a-dozen 
years ago some foreign capitalists discerned the fine 
field that was here open to them ; but before foreign 
capital to a large amount could be attracted, it was 
indispensable to establish the perfect soundness of the 
security and the negotiability of the mortgage-bonds. 
The first step towards this was the establishment at 
Vienna of the Vindohona — a joint-stock company 
which, on receiving a percentage or commission, guar- 
antees the repayment of loans on estates, as well as 
the regular payment of the interest. In this way, the 
creditor acquired a double security : first, the land 
itself, — secondly, the capital of the Vindobona. Next, 
land-banks were established which advanced money 
on these bonds or mortgages to their full amount — 
thus rendering them negotiable. Next it was seen 



that a large and most profitable business might be 
carried on by the purchase and re-sale of estates — 
purchasing them in block, and re-selling them im- 
mediately in comparatively small portions, say of 100 
to 500 acres. To accomplish this, the Banque de 
Credit Foncier et Industriel was established, which 
has agents all over Austria, who examine into titles 
and values, who find out proprietors xeady to sell and 
small capitalists ready to buy, and in fact manage the 
whole of this part of the business, while the Bank 
furnished the funds. This business proved so pro- 
fitable, and the field of operations was found to be so 
extensive, that it was resolved to invite the co-opera- 
tion of capitalists all over Europe. Hence the estab- 
lishment of the International Land Credit Company. 
The business of this company is simply to raise 
funds for carrying on the highly profitable operations 
above-mentioned : the money being obtained from the 
pubKc upon bonds issued by the Company, bearing 
5 per cent interest, and which are rendered more 
than usually negotiable, owing to the number of local 
land-banks and other financial establishments which 
are affiliated with the International. The credit of 
conceiving so remarkable a series of co-operative com- 
panies, and of successfully establishing it, is due to 
M. Langrand-Dumonceau, of Brussels. The security 
offered is the most complete that can be imagined : — 
1, the land; 2, the double amount for which the 


purchasers give their bond; 3, the capital of the 
Vindobona; 4, the capital of the Banque de Credit 
Foncier et Industriel ; and lastly, the immense capital 
of the International. But what is chiefly remarkable, 
from our point of view, is the system of financial co- 
operation herein displayed — a system which is des- 
tined to be ere long immensely developed — until, in 
fact, Europe shall become but one country as regards 
industrial finance, the spare capital of each country 
being drawn to common centres, and seeking the best 
market wherever that may chance to be found. 

This wealthy and busy precinct has a literature of 
its own — journals whose special task it is to record 
THE CITY i^s operations and set forth its condition. 
ARTICLE. ]g^^ ^^ i^j^g more than this ; for the whole 

country takes an interest in its bulletins. In all our 
daily newspapers there is a department of news, never 
omitted, which is scanned with devout attention by 
hundreds of thousands of readers, yet which is certainly 
not indebted for its popularity to any attractiveness of 
style or appearance. It is the driest column or columns 
in the paper. It is full of figures, and tables of figures 
(usually so repulsive to readers), preceded by a few 
paragraphs, seemingly of a very stereotyped aspect, 
and couched in language peculiar to itself. Therein 
we read of " Consols for delivery," " Eeduced and New 
Threes," "Turkish ConsoHd^s," "Danish Scrip," "Greek 
Coupons," " New Granada Deferred," " Spanish Pas- 



sives/' " Eussian Threes/' " Chilian Sixes," and other 
such things hard to be understood by the uninitiated, 
however conversant they may be with the grammar of 
Lindley Murray and the dictionary of Dr Johnson. 
We also read that "the market is easier," — or that 
it " opened flat," — that it " assumed a more lively ap- 
pearance," or that it " showed a falling tendency," or 
"great depression." This never-omitted and much- 
studied portion of the paper is the City article, in 
which the health and spirits of the Money Market are 
described pathologically ; and the price of stocks and 
shares, and the condition of all established companies 
quoted on 'Change, are carefully recorded. A single 
glance at this portion of the Tiw£s will show the 
magnitude and variety of the enterprises quoted on 
'Change. Besides the loans to foreign governments, 
there are nearly 700 kinds of stock or shares in the 
official list, connected with railways, mines, docks, 
joint-stock banks, colonial government securities, and 
miscellaneous enterprises.* 

The City article is no longer read merely by a par- 
ticular class of the community. All classes, and all 

* The British Funds (comprising Consols, Annuities, and Exche- 
quer Bills), Indian Government Securities, and Bank of England 
Stock, are represented by 20 different kinds of stock ; of Foreign 
Government Stocks there are 81 ; of Colonial Government Securi- 
ties, 28 ; and of American State Securities, 5. The stocks and shares 
connected with Railways in all parts of the world are 430 ; with 
Banks, 90 ; with Mines, 74 ; with Docks, 6 ; and with Miscel- 
laneous Joint-Stock Companies, 134. 


places in the country, have a direct interest in the facts 
which it records. It is read with interest not merely 
in London, Liverpool, Manchester, Birmingham, Glas- 
gow, and the other great centres of industry, but even 
in uncommercial cities like Edinburgh, where men live 
by the learned professions only, and who scorn trade in 
the old sense of the word. In truth, nearly all men in 
this country are traders now, though many of them trade 
as it were by proxy. The joint-stock system of enter- 
prise has of late years drawn the whole community 
into its vortex. As a nation, we have grown very rich. 
It is computed that the annual savings of the nation 
amount to the enormous sum of £130,000,000. Like 
thrifty men, we desire to employ that sum, our spare 
money, in the most profitable manner. Nowadays, 
too, we have the whole world open to us as a field of 
commercial and financial enterprise. In commerce, 
at least, nations are now brethren. No nation objects 
to the introduction of foreign capital to develop its re- 
sources. These two facts — the vast increase of wealth 
in this country, and the magnitude of the field open 
for its employment — have given an extraordinary ex- 
pansion to the joint-stock system ; an expansion which 
has been greatly aided by the passing of the Limited 
Liability Act. 

Previous to the passing of that Act, it had been 
proved by experience that business could be conducted 
as successfully by a board of directors as by a private 



firm. True, the management of a public company is 
never so economical as that of a private firm, and the 
THE JOINT- supervision of a salaried board of direc- 
sTocK SYSTEM, ^^^.g ^g ggitjom SO vlgllaut as that of pri- 
vate partners, whose whole fortune is at stake in the 
concern. But, on the other hand, a joint-stock com- 
pany obtains the command of a larger amount of capital 
than private firms — which gives it a great advantage ; 
and, moreover, in many cases, it is ensured of a large 
amount of business, in consequence of its shareholders 
being also its customers. Take, for example, the case 
of a joint-stock bank. It may have a thousand share- 
holders, and all these shareholders are its customers. 
They have not only subscribed the capital by which the 
business is carried on, but they intrust all their money 
to its keeping, and get all their loans and discounts 
from it. In this way they make business for it, and 
at the same time share in the profits of that business. 
They not only get from it the usual interest on their 
deposits, and the usual advantages of monetary ac- 
commodation, but they share in the profits which arise 
from this form of business. 

The Limited Liability Act has greatly lessened the 
risk incurred by shareholders, by limiting the liability 
of each to the amount of capital for which he has sub- 
scribed. Shareholders are now comparatively at their 
ease. They elect from their own number a Board of 
Directors, whom they pay for conducting or at least 


supervising the business of the company, and they 
know that at the worst they cannot lose more than the 
sum which they have chosen to subscribe. The system, 
on the whole, has worked remarkably well. It is also 
accomplishing a revolution in the ideas and financial 
habits of our people. It offers a higher rate of profit 
than the interest obtainable upon deposits in banks, 
and thereby more effectually puts an end to hoarding, 
extends the spirit of enterprise among all classes, and 
draws into active use the whole spare money of the 
people. Clergymen, lawyers, doctors, noblemen, and 
tradesmen alike, now become shareholders in joint- 
stock companies. Each, while pursuing his own call- 
ing, invests his reserve funds in some financial, trading, 
or industrial enterprise. He thus obtains the profits 
of another trade while following his own. 

"We are at the outset of a new era in social 
progress, and one which is probably the highest 
ERA OF CO- "^0 which material civilisation can attain. 
OPERATION, ji- ig |.|^g p^^ q£ Co-operation. Hitherto 

Competition has been regarded as the most effi- 
cient agent of social progress. But the principle of 
competition is one of rivalry and struggle — it is a 
system of beggar-my-neighbour — most useful in the 
earlier stages of civilisation, but one most unworthy 
of civilisation in its maturity. It is costly, for it re- 
quires many companies and establishments to do the 
work which would be more economically performed by 



one ; and it is full of social unliappiness, and fruitful 
in the bitter feelings of rivalry and jealousy, because 
each establishment seeks its gains at the expense of 
the others. The new system of co-operation, on the 
other hand, seeks to unite and fuse into one the 
hitherto rival interests of the trader and his customers, 
of the consumer and the producer. Take for example 
the case of a company for the supply of gas, or water, 
or any other necessary or luxury of life, and there you 
find that a large portion of the customers are also 
shareholders. By-and-by the system will be more 
fully developed, and the social advantages will be 
commensurately increased. Say that a little town is 
desirous to supply itself with gas or water; then a 
company will be formed, with a capital apportioned in 
many small shares, so that nearly every householder 
may be a member. In this way the company will 
ensure for itself the largest possible number of cus- 
tomers — opposition and jealousy will disappear, and 
the little community will have but one interest in the 
matter. In like manner, a town may supply itself 
with bread, or groceries, or butcher-meat, or any other 
article for which there is a general demand. The em- 
ployes, too, of the company, by holding shares in it, 
may be made to participate in its interests, and to dis- 
charge their duties with more scrupulous diligence 
than is usually to be found in a hireling or salaried 
agent. No doubt the time is still distant when the 



system of co-operation shall reach this development ; 
nevertheless, its coming may be calculated upon. And 
thus, at the present hour, we are witnessing the initial 
stage of a principle which will revolutionise our system 
of industry, and accomplish results fraught with a vast 
increase of happiness and prosperity to the community. 
Large as are the annual profits of our nation, it seems 
beyond doubt that a considerable portion of the im- 
mense capital recently invested in joint-stock com- 
panies has been drawn from little hoards, which pre- 
viously lay dormant. But the peculiar feature of the 
new position is this — that instead of keeping their re- 
serve funds in bank, men now invest them in joint- 
stock enterprises, for the sake of obtaining a higher 
rate of profits. Banks give a comparatively low rate 
of interest, for they have to pay themselves for taking 
charge of deposits, and for finding appropriate employ- 
ment for their customers' money. But by becoming 
a shareholder in a joint-stock enterprise, a man em- 
ploys and invests his money without the help of inter- 
mediate parties, and hence is entitled to and obtains 
the profits of trade subject to no abatement. It might 
be supposed that, owing to this change, the amount of 
deposits in the banks would be diminished ; but it 
must be remembered that the money thus abstracted 
from the banks is in great part returned to them from 
another quarter. The decrease in the deposits of in- 
dividuals is compensated by the deposits of the new 



companies. Each company opens an account with a 
bank, and deposits with it its spare funds ; so that 
what the banks lose in one form they gain in another. 
This change, however, is important in one aspect. 
Banks do not speculate. They lend their money only 
on the best and most negotiable securities, and abstain 
from employing it in industrial enterprise. Hence, 
although they are of inestimable value in sustaining 
commerce, they do not take direct part in the establish- 
ment of new branches of industry, or in the development 
of new national resources. The joint-stock companies, 
on the other hand, do this as their general feature. They 
make railways, they open mines, they manufacture gas, 
and engage in all manner of reproductive enterprise. 
In fact, the distinction may be stated thus : — The com- 
panies mahe the securities upon which the banks lend. 
Money on loan, we think, would have become cheap 
of late years but for the great growth of joint- stock 
companies. If the great and ever-increasing profits of 
our people had been deposited, as before, with the 
banks, these establishments would have had so much 
money to lend compared with the amount of securities 
upon which they make their advances, that the rate of 
interest' must have fallen. But the new companies 
have immensely increased the aggregate of securities 
upon which banks are in the habit of lending. They 
have made almost every man a trader, and supply 
him with a form of property which banks will lend 


THE city's CUKRENCY. 159 

upon: and partly in consequence of this, the rate 
of money has not only maintained itself, but has 
greatly advanced. In fact, men nowadays keep their 
reserve funds, not in the banks in the form of money, 
but in the form of bonds, shares, and coupons — nego- 
tiable when necessary, and bearing a higher interest 
than the banks could give. To keep money in bank 
(save what is absolutely necessary for one's ordinary 
expenditure) is now an exploded custom. All that we 
think of commanding, or keeping in reserve, now is, 
not cash, but the paper representative of property, and 
the interest which comes to us as the holders of these 
symbols or title-deeds of wealth. 

Strange to say, in this City of Gold, gold cannot be 
seen. We know, from ofi&cial returns, that so many 
THE CITY'S niillions of gold lie in the vaults of the Bank, 
CURRENCY. Q^^^ ^Q j^j^fgj. ^1^0^ ^ fg^ thousands of sove- 
reigns are kept in each of the other banks, as small 
change for their customers' wants. But the precious 
metal makes no appearance in the business transactions 
of this City of Money. Bits of paper, with some writing 
on them, are the potent agents of the scene. Paper, 
paper everywhere ; but no gold — not even bank-notes. 
Let a man go to buy some shares. He sees the rate 
they are quoted at, and, going into the dingy office of 
his broker, commissions him to buy. The broker runs 
out into the busy crowded room of the Stock Ex- 
change, finds or calls out for some one who has shares 



of the kind to sell, makes a bargain at the cnrrenl 
rate, and brings back either a cheque or a stamped 
agreement to purchase, which he hands to his client. 
Coupons or certificates are given on one side, and a 
cheque on the other. But no gold — not even notes ! 
The same takes place in the Eoyal Exchange and 
Mincing Lane — only bills and produce are there dealt 
in, instead of stocks. If you pay a man, you give him 
a cheque. If you discount a bill, you get the produce 
in a cheque. If you obtain a loan from your banker 
on stock, the amount is placed to your credit, and you 
tell your creditor to draw on you, or give him a cheque. 
It is really a strange thing to contemplate — so much 
wealth changing hands : money ceaselessly in transitu 
— yet not a sovereign to be seen. It is but the ghost 
of money that occupies the city : or rather, it is money 
in its most civilised form — convenient and inexpensive. 
It is the cheque-system — the credit-system. And, after 
all, money itself is nothing else than a form of credit : 
a thing (whatever its substance) which men by com- 
mon consent have agreed to recognise as a definite 
symbol of wealth — a representative of property. 

The truth is, the whole operations of this monetary 
metropolis would come to a standstill if the payments 
and exchanges of property had to be carried on in 
gold. A single dealer sometimes lends, or pays, or 
receives a million sterling or more in a single day; 
and dealings to the extent of several hundred thou- 


THE city's currency. 161 

sand pounds are by no means exceptional occurrences 
on the part of single individuals. Many millions 
of property are changing hands, in loan or pur- 
chase — in banks, discount-houses, on 'Change, or 
in Capel Court — every day. Fancy what it would 
be if men had to carry about with them such a 
mass of gold. A thousand sovereigns is a burden 
which few men would care to carry about with them 
for a single hour. Wliat a sight, then, it would be if 
the busy hive had to trot about thus laden. Ants in 
their hive, carrying about their eggs as big as them- 
selves, would be a joke to it. And consider, too, what 
insecurity there would be — what occasions for loss of 
the precious coins — what temptations to theft or rob- 
bery — ^if the transactions in this busy place were so 
conducted. It would be quite impossible to carry 
about such a mass of gold as is needed to liquidate 
the engagements which daily take place. Still more, 
even if it were possible to carry about these loads of 
gold, the gold itself in such quantities could not be 
procured. Happily the yellow metal is not wanted. 
Cheques, bills of exchange, and bank-notes are found to 
be equally valuable and negotiable : they represent pro- 
perty quite as reliably as gold, besides being infinitely 
more portable, safe, and convenient. And hence they 
— or rather, bills and cheques — constitute to all in- 
tents and purposes the only currency on 'Change and 
throughout the monetary city. By means of them, 




transactions to the extent of many millions take place 
daily, without a single sovereign or even bank-note 
being visible. 

We have styled the narrow but all - important 
precinct of which we write the City of Gold. Yet we 
PERILS OF ^^^Q had to say that no gold is visible 
THE CITY. there. If gold be regarded as an equi- 
valent expression for wealth and property, our title is 
correct, — for the whole place abounds in wealth, and 
deals in it. Nevertheless it is the City of Gold even 
in the literal sense of the term, for its whole existence, 
all its operations, depend upon the presence of gold 
in one part of the locality — in the Bank of England. 
The gold, it is true, is invisible. The thousands who 
operate there never see it. It lies hid in the strongest 
chambers of the Bank, and no one sees it or counts 
it but the officials who make out the weekly return. 
But, visible or invisible, its presence and amount regu- 
late the operations of the Bank, and those operations 
regulate and affect all the other operations of the 
precinct. The value of stocks and shares rises or 
falls, panic or prosperity occur, according as much or 
little of the yellow dross is reported to be in the occult 
chambers of Threadneedle Street. 

Hence it is that the paragraph in the City Article 
which is most closely studied is that which relates to 
the supply of gold. The two brief lines which tell 
how much gold was taken to the Bank or withdrawn 



from it, are in reality the vital point of each day's 
monetary news. If gold is being deposited largely in 
the Bank, the dealers are all elate, and business and 
enterprise go ahead ; if much gold is being withdrawn 
from the Bank, every one becomes uneasy ; enterprise 
stands still. How is this momentous effect produced? 
The practical answer is, that the movements of the 
precious metal regulate the Bank's rate of discount, 
and the rate of discount affects the whole industry of 
the country. If traders can borrow, or get their cus- 
tomary advances, on easy terms, say at 4 per cent, they 
have every inducement to extend their business and 
employ as many men as possible ; but if they have to 
pay 8 or 10 per cent, their margin of profit is seriously 
diminished, if not altogether swept away. Hence every 
fluctuation in the Bank-rate is watched with intense 
interest throughout the whole country, and most of aU. 
in this monetary metropolis. But in this precinct, as 
elsewhere, the community is divided into two classes 
which are very differently affected by the changes in 
the Bank rate. Trade and Money, we have said, are 
the great powers which together set agoing the whole 
business of the precinct ; traders and money-dealers 
constitute its population. A high rate of discount is 
disadvantageous for the trading and commercial classes, 
but, on the other hand, it is very profitable to the 
banks and money- dealers. An increase in the rate is 
virtually a transfer of a portion of the profits of the 



former into the pockets of the latter. Bankers like 
a high rate of discount, the trading classes do not. 
But both of them are alike interested in watching the 
movements of gold, as productive of the changes in 
the rate of discount — or, in other words, in the value 
of money on loan. ^Hl 

But why, it may be asked, should a little more or 
less gold in the Bank of England produce such im- 
mense effects upon the trade and prosperity of the 
country ? All the engagements which are contracted 
in this monetary metropolis, as well as throughout 
the country, although carried on solely by means of 
cheques and bills, are bound to be met, if required, by 
payment in the legal money of the country. This 
legal money is gold and Bank of England notes. Gold, 
in exceptional times, may not be easily procurable ; but 
the other element of the legalised currency — namely, 
bank-notes — -may be manufactured in any quantity. 
It may be asked, then, — "When gold, at these rare times, 
becomes scarce, cannot its temporary deficiency be com- 
pensated by an increase in the issue of notes — which 
in the eye of the law, as well as in the estimation of 
the pubKc, are as valid a tender as gold ? It must be 
remembered, however, that these notes are a legal * 

* Scotch notes are not a legal tender at all, — they circulate sim- 
ply from the confidence which the public have in the banks which 
issue them. Yet they are as readily received as if (like those of 
the Bank of England) their acceptance were made compulsory by 
Act of Parliament. 



tender only so long as the Bank is ready to give gold 
for them on demand. The first duty of the Bank is to 
take care that it is at all times in a position to do this. 
It must insure the convertibility of the note. It must 
always be ready to give gold for its notes whenever 
such payment of gold is demanded. It is necessary, 
then, to observe to what extent such a demand for 
gold-payments is likely to arise, before we can decide 
as to the propriety of the measures which the Bank 
takes to meet such a contingency. 

As gold becomes scarce, does the public lose faith 
in the notes, and rush to the Bank to have them con- 
verted into gold ? By no means. Experience enables 
us to speak with perfect confidence upon this point. 
It is not a question of opinion, but a simple matter of 
fact. No such loss of confidence in the notes of the 
Bank has ever occurred, either in our own time, or in 
that of our fathers and grandfathers. The Bank of 
England note is a tender which no one mistrusts. 
People take the notes as readily when there is not a 
spare sovereign in the Bank, as when its coffers are 
overflowing with the precious metal. Even in times 
of the direst commercial crisis, of the worst monetary 
panic, the public ask only for notes. In 1826, when 
there was hardly a sovereign in the Bank, the public 
readily accepted even old £l-notes which had been 
withdrawn from circulation, and which had not been 
a legal tender for four years before. The notes serve 



their purpose as money quite as well as gold does,' 
and the public greatly prefer them. The conver- 
tibility of the notes is never endangered, and people 
would much rather have the notes than an equivalent 
sum in gold. This is a fact beyond dispute. As a 
medium of internal circulation — as a means of set- 
tling accounts among ourselves — Bank of England 
notes are accepted everywhere and at all times as pre- 
ferable to specie. Indeed, we may go further than 
this, and say that a cheque upon a good bank is pre- 
ferable to either, although it is not a legal tender at 
all. Gold is quite unneeded in our monetary transac- 
tions with one another. And even if it were an- 
nounced that the Bank could not give us gold for its 
notes for a twelvemonth to come, not one man in a 
hundred thousand would care. The public at large 
neither require the gold nor desire it. ^hI 

Who, then, are the parties whose action at times 
produces a drain of gold from the Bank ? They may 
be classed under the following heads. It may be 
the Bank of France, or any other great foreign 
bank, which buys up bills of exchange upon London, 
and sends them here to be cashed, in order to supply 
itself with gold from the stock kept on hand by the 
Bank of England. Or it may be our own Government, 
which, by making loans to a foreign State, necessi- 
tates a corresponding export of the precious metals — 
or which, in times of war, has to export specie to pro- 


vide supplies for its army abroad. It may be our 
corn-merchants importing grain to compensate a defi- 
cient harvest; or our manufacturers who purchase 
abroad the raw materials of their industry. Or, 
finally, it is great capitalists, great money-dealers, who 
convert their money into gold or silver as best suits 
their purpose for the time, and who transfer it from 
one country to another, wherever they can make the 
largest profits upon it. It is these agencies, and not 
any mistrust of the notes, which produce the occa- 
sional heavy demands for gold upon the Bank of 

It is extremely rare that such drains ever become 
so great as to be a real and unavoidable embarrass- 
ment for the Bank. In times of war, indeed — as, for 
example, during the long and gigantic contest with 
France under the First Napoleon — the Government 
may have to send its last sovereign abroad in order to 
sustain the military operations of itself and its allies. 
But, save in such extremely exceptional circumstances, 
which have occurred only once in our history, the 
drain of gold for export never assumes a magnitude 
such as really (that is to say, apart from the artificial 
restrictions of the Act of 1844) to imperil the position 
of the Bank. The export of three or four millions of 
specie generally produces such an effect upon the rate 
of exchange, as of itself to render any further exports 
of the kind unprofitable. Hence the drain ceases. And 



moreover, as experience amply shows, in two or three 
months all the gold thus exported returns to us. 
These, then, are the causes which produce the occa- 
sional drains of gold from the Bank, and such are the 
limits by which these drains are circumscribed. But 
never — not in a single instance — is gold demanded 
from the Bank owing to any loss of faith in its notes. 
No one doubts the value of the Bank of England's 
notes, and the power of converting them into gold is 
never desired save as a means of procuring gold for 
export, by the parties and for the purposes which we 
have specified. 

The City of Gold is based upon gold: and the 
foundation is found to be pre-eminently unstable 
MONETARY ^^^ pcrilous. The golden base perpet- 
EARTHQUAKEs. ^ally osciUatcs to and fro, and each of 
its greater oscillations is felt like the shock of 
an earthquake. It rises and falls, expands and 
contracts, and sometimes seems to slip away from 
beneath the City altogether. Then goodly houses go 
down by the dozen, — ^not because they are ill-built — 
not from any fault of the architect or occupants, but 
simply because the foundation upon which they all 
stand has given way. Of late years these oscillations 
have become more frequent and more serious ; and 
every ten years or so, a convulsion takes place — not of 
nature, but by Act of Parliament — which spreads 
terror and disaster through the Golden City, and para- 



lyses the whole country as effectually as if an earth- 
quake had strewed with ruins the great seats of our 
national industry. The merchant and the manufac- 
turer, the shopkeeper and the day-labourer, alike find 
their trade stopped, and their gains swept away. Suf- 
fering and want spread over the land, as if there were 
a great famine. There is a paralysis of trade, a dearth 
of employment ; and the hard times are felt by the 
mill-worker and the bricklayer, not less than by the 
magnates of the trading and commercial world. 

Is there not something wrong here? Ought the 
presence or absence of a few millions of gold to make 
the vast difference between national prosperity on the 
one hand, and national disaster and widespread suf- 
fering on the other ? How will posterity speak of us 
when it sees that we made the huge fabric of our na- 
tional industry stand like an inverted pyramid, resting 
on a narrow apex formed of a chamberful of yellow 
dross ? Will they not laugh at our folly, our barbar- 
ism ? When the usual supply of gold is temporarily 
diminished, why should our usual credit-system be re- 
stricted in proportion, or totally suspended ? Of what 
use is Credit but to take the place of payments in coin ? 
Was it not for this purpose, and for this alone, that 
credit and paper-money were adopted? Why, then, 
not make use of our credit-system as a means of com- 
pensating the temporaiy absence of gold ? Why not 
tide over the difficulty, instead of aggravating it ? and 



SO avoid the tremendous sufferings which are ever- 
recurrent under our present system of monetary legis- 
lation. Suffering thousands and starving myriads 
signalise each great monetary crisis. Even during the 
last twelve months, though the crisis of evil has been 
escaped, the Bank-rate of 9 or 10 per cent has swept 
away a large portion of the profits of trade into the 
pockets of bankers and capitalists. Parliament inflicts 
misery upon the country out of an antiquated defer- 
ence to some bits of yellow dross. Is this wisdom, — 
is it humanity, — is it civilisation ? 


A GRAND and imposing place is the Bank of England. 
Its very exterior bespeaks its importance and its power. 
It rises in the midst of the City of Gold like a fortress, 
the Capitol of the precinct. The currents of traffic and 
of black-coated myriads of busy human beings flow 
around it, as sundered streams around a mountain-rock 
which they are powerless even to abrade. As you 
walk around its quadrangular mass, covering several 
acres of ground, each side presents the same feature 
of a front of solid stone, massive enough to be the face 
of a fortress. Yet it is a fortalice of Gold, and wealth 
as well as power is represented by its exterior. Its 
solid front is relieved by stately architectural decora- 
tion ; and ornamental columns, supporting nothing, 
but simply let into the wall, present a display of 
opulence and grandeur which makes no sacrifice of 
strength. On all sides, the frontage is relieved by 



the framework of windows, but the decorative mould- 
ings enclose only blank surfaces of solid wall. A few 
small upper windows, on the side which faces the Eoyal 
Exchange, are the only breaks in the solid front. The 
vast building is lighted entirely from the interior. 
There is so much of the fortress in the external 
appearance, that one almost expects to see the grim 
mouth of cannon peeping out somewhere in the recesses 
between the columns. At the time of the Chartist 
mob in 1848, the Bank was actually garrisoned by 
the troops ; and much of its internal as well as ex- 
ternal architecture has been planned with an eye to 
military defence. The building is a melange of many 
different styles : but the unity of general effect is well 
sustained, and the architecture of the vast edifice 
admirably suits the requirements, and symbolises the 
character, of this fortalice of Gold. 

Conscious power is never nervous about petty dan- 
gers ; and, solid and defiant as is the fa9ade of the 
Bank, all may enter who please. The restrictions 
upon entrance common in minor establishments are 
here unknown. Strong and secure, the Bank lets 
strangers come and go as well as its own customers. 
Any one who summons courage to do so, will pass 
unchallenged through the solid portals, and past the 
grand-looking porters in their gold-laced cocked hats 
and gold-embroidered red mantles. On each front of 
the building there is an entrance. The largest of these. 



an arched carriage-way, is on tlie north side, facing 
Lothbury ; where a solid gate studded with iron rivets, 
backed by inner gates of solid iron, guards the entrance 
to the Bullion Office ; and through these portals vans 
laden with the precious metals daily come and go. 

But the chief entrance to the Bank is in Thread- 
needle Street. Passing through it, we find ourselves 
THE BANKING ^^ ^^ opcu pavcd court. On either hand 
DEPARTMENT. ^^^ ^j^g j^^^Qg q£ ^-^^ Bauklug department 

of the establishment, and in front is the Issue de- 
partment. The portion of the Banking department 
to the right (forming the entire eastern end of the 
Bank) is devoted to the management of the National 
Debt, — ^where all transfers of Government Stock are 
registered, and where periodical payment is made of 
the dividends. In ordinary times these large halls 
are mere vacua regna, where a few clerks may be seen 
behind unfrequented counters, with old and musty- 
looking volumes of large size arranged in shelves on 
the wall. But at each quarterly term these rooms 
are crowded by people of nearly all ranks and classes 
(many of them from the country), who come to get 
payment of their dividends — which vary in amount 
from several thousands sterling down to a single 
pound or even less. The amount of work which 
this entails upon the Bank is greater than might be 
thought. Apart from the work of paying the divi- 
dends, the transfers of stock, which the Bank has to 



register, amount in the aggregate to the enormous 
sum of about 230 millions sterling a-year * 

Leaving this generally empty part of the edifice, 
let us visit the other portion of the Banking depart- 
ment, lying to the left of the chief entrance. Here 
we find the Drawing OiB&ces — a long range of counters, 
one portion of which is devoted to Public or Govern- 
ment business; and the other, and larger, to banks and 
private customers. In the former of these offices are 
paid in the moneys received by the Government in 
payment of revenue, while the Government salaries 
and other expenses are paid out. This portion of the 
Banking department forms two sides of an oblong 
court (once the little churchyard of St Christopher-le- 
Stocks), in which is an elegant parterre, with some 
healthy trees and shrubs, and an ever-flowing convol- 
vulus-shaped fountain, which is supplied by a well. 
Looking into this elegant court from the north is the 
grand Court-room of the Bank, where the Directors 
meet in Council every Thursday, and publish those 

* The amount of stock transferred at the Bank of England in 1860 
was £196,282,526 ; in 1861, £268,900,776; in 1862, £228,453,050. 
In other words, one-third of the bonds connected with our Na- 
tional Debt changes hands every year. The number of holders 
of stock varies but slightly: in 1861 it was 261,367; in 1862, 
264,696; in 1863, 264,011. The number of persons entitled to 
large dividends is increasing. In 1861 there were 529 persons 
entitled to dividends of £2000 a-year and upwards: in 1862 there 
were 569 ; and in 1863, 585. At the humbler end of the list are 
92,190 persons whose year's dividends did not exceed £10 in 1861, 
92,262 in 1862, and 81,870 in 1863. 


announcements of change in the rate of discount which 
set a-palpitating the City of Gold, and sometimes also 
the whole country. Adjoining is the Committee-room, 
where three Directors attend daily to supervise the 
business of the Bank, — seldom alone ; for other Direc- 
tors generally drop in, animated by a love of busi- 
ness, and attracted also by the excellent lunch which 
daily makes its appearance at one o'clock. 

A large portion of the Bank's business makes little 
show. The discounting of bills is the most important 
part of the daily operations, but very properly these 
operations are hidden from view. A man who has a 
" discount-account" with the Bank, and who wishes to 
cash certain biUs in his possession, drops them in the 
morning into places like letter-boxes, and returns in 
the afternoon to learn the fate of his application. 
Ordinarily, the bills are discounted as a matter of 
course ; but in ticklish times — and these are the very 
occasions when money is most needed by the trader — 
many a heart palpitates as its owner awaits the deci- 
sion of the Bank-parlour. But still larger issues are 
occasionally at stake, when the representatives of great 
firms are ushered into the presence of the Court, and 
explain the state of their affairs with a view to obtain 
exceptional assistance in order to tide over some great 
but temporary embarrassment. 

Let us now see the other great division of the Bank 
— ^the Issue department. Leaving behind us the first 





court wHcli we entered from Threadneedle Street, with 
its red -mantled porters, and the Detective in plain 
clothes who seems to idle his time over a 
newspaper by the doorway, — ^we ascend half- 
a-dozen broad steps, and enter a hall where people are 
getting notes exchanged for gold, or gold for notes, or 
notes for others of equal value. This is a public office, 
open to all, whether customers of the Bank or strangers. 
The chief applicants here are persons who wish to 
exchange their notes for coin ; and as these notes are 
handed in, their genuineness is carefully ascertained by 
an elaborate but rapid process of scrutiny. In the 
north-western corner of the building — if you are pro- 
vided with an order — you may see the Manufacture, 
or printing, of the notes ; and in another room, you 
may inspect the stock of cancelled notes, which are 
preserved for ten years after being returned to the 
Bank. Thus — as in the printing-office there is always 
a stock of unfinished notes, still wanting the date, 
number, and signature — you may see the notes in 
embryo, as it were before they are born, and also after 
they have been long dead. ^1 

In the centre of the Issue department, and in the^ 
very heart of the Bank, you come into a glass-roofed 
THE BULLION court ; aud standing on the landing-place 

OFFICE. q£ g^ flight of steps which leads down 
into it, you see below you men engaged in packing 
or unpacking the precious metals, conveying them 


into the vaults of the Bullion Office, or sending them 
away in vans. There you may see the precious ores 
in boxes as they come from the mines ; or returning 
from the Bank-refiners in glittering ingots, — the silver 
in blocks almost as large as a common brick, and the 
gold of similar shape, but only about an inch in depth ; 
or finally, you may see them returning from the Mint 
in the shape of coin, packed in strong boxes. The 
packers toss about the ingots, or fill with bags of coin 
the iron-bound boxes, with an equanimity or indif- 
ference which seems strange to onlookers who have 
never before seen the precious metals in quantity. 
The bullion-vaults, as might be expected, are ex- 
ceedingly strong chambers, and a guard of soldiers 
and policemen nightly keep sentry over the golden 

For the coin and bullion thus brought to it, the 
Bank pays — either in its notes, or, as is generally 
the case, simply by placing the amount to the account 
of the depositors. Thereafter the coin or bullion no 
longer belongs specially to the depositor, but equally to 
every one who keeps an account at the Bank, or who 
holds any of its notes. The Bank is bound to give 
gold for all its notes on demand, — and also (although 
this is utterly impossible) to pay all its deposits like- 
wise in gold; but the persons who brought the gold 
have no other claim upon the Bank's stock of the 
precious metal than that which is common to all the 




noteholders and depositors alike. The gold has been 
sold to the Bank; and thereafter any one who has 
an account with the Bank, or who holds some of its 
notes, may draw upon its stock of gold at his pleasure. 
As you lean over the brass-topped balustrade, look- 
ing at the coming and going of the precious ores, you 
GOLD AND witness operations which affect the whole 
NOTES. business of the Bank, and, to a great extent 
also, the whole trade and industry of the country. 
Every van-load of gold which enters or leaves that court 
causes a rise or fall in the value of money, by increas- 
ing or diminishing the amount of currency available 
for the requirements of the community. The reason 
of this is not obvious, but it is easily explained. The 
Bank is authorised by Act of Parliament to issue notes 
to the amount of fourteen and a half millions sterling 
(£14,650,000) upon an equal amount of Government 
securities which it holds ; besides this, it is entitled 
to issue an amount of notes corresponding to the value 
of the gold which happens to be in its vaults.* Hence 
the amount of Money in this country is constantly 
varying. When much gold is deposited in the Bank, 
the currency is increased ; when little gold is deposited 
in the Bank, the currency is diminished. What is of 

* All the specie is kept in the Issue department, — save a small 
portion (usually about £700,000), partly in gold and partly in 
silver coin, which is needed for the ordinary business of the Bank- 
ing department. But it is the amount of gold in the Issue depart- 
ment alone which regulates the amount of the Bank's notes. 


more consequence, the value of money on loan, the rate 
of discount, is affected to a still greater extent by every 
variation in the stock of gold in the Bank's vaults. It 
is this latter process which invests with such critical 
importance the entrance or exit of the gold-laden vans 
through the gates of the Bank of England. 

Let us see the process by which these variations are 
accomplished. In the first place, how is this increase 
TT^,„ ^r^ 01' decrease, this addition to or subtraction 


ARE PUT IN from the currency of the country, effected 


by the Bank ? It is usually said that the 
Bank gets its notes into circulation by paying them 
away to the persons who bring the gold to it. It 
is supposed that the depositors of the gold ask for, 
and obtain in exchange, notes of the Bank equal in 
amount to the value of the gold so deposited. But 
this is a mistake. Suppose an individual take twenty 
or fifty thousand pounds' worth of gold to the Bank, 
what motive has he for carrying oflf a correspond- 
ing amount of bank-notes in his pocket? Save in 
exceptional cases, he does nothing of the sort. The 
amount is placed to his credit in the Bank, or a draft 
is given him upon some other bank where he keeps 
his account, and thereafter he can draw to that amount 
in larger or smaller sums as suits his convenience. It 
is a mistake, then, to suppose that every deposit of 
gold necessarily occasions, or does occasion, a corre- 
sponding increase of the note-circulation of the Bank. 



When gold is brought to it, the Bank does not neces- 
sarily pay away an equal amount of notes : it merely 
becomes authorised to make an issue of notes to that 
amount. It makes a corresponding addition to its 
stock of notes in its Banking department, — that is 
all. And it may keep them there as long as it 
pleases. Jll 

The variations in the amount of notes in the Bank- 
ing department are effected in this way. Every day a 
large amount of bills which the Bank has discounted 
are falling due, and are being paid to it in notes. 
The Bank never re-issues any of its notes ; but, when 
its stock of gold remains unaltered, it places an amount 
of new notes in its Banking department equal to that of 
the old ones which it has received in payment of the 
lapsed bills. And if its stock of gold has altered, 
it places in its Banking department either a greater or 
lesser amount of notes than it has received in payment 
of these bills, according as its stock of gold has in- 
creased or diminished. For example, if a million's 
worth of bills which the Bank has discounted fall due 
and are paid to it on a certain day, and if its stock 
of gold has on that day diminished to the extent 
of £100,000 then instead of placing £1,000,000 of 
new notes in its Banking department, it places only 
£900,000. In like manner, if the same amount of 
discounted bills falls due, while its stock of gold 
has increased to the extent of £100,000, it places 


£1,100,000 notes in its Banking department, instead 
of £1,000,000. 

The notes thus kept in the Banking department are 
inactive, — they are not in circulation. They are cur- 
rency, — ^but (if we may so phrase it) they are not part 
of " the currency." They are not in use, — only ready 
to be put in use. Gold may flow in increasing streams 
into the Bullion Office, but such influx has no power 
to put into circulation the notes in the Banking 
department. Another process must come into play 
before these inactive notes become active, by being 
transferred to the hands of the pubHc. 

This is effected chiefly by means of the discount 
operations. As the stock of gold in the Issue depart- 
ment increases, authorising a correspond- 


OP THE CUR- ing addition to the amount of notes in the 
Banking department, the Bank endeavours 
to get this increase of notes into circulation. It can 
only do this in one way — namely, by letting the public 
have its notes on easier terms than before. For example, 
suppose there are 15 millions of gold in the Bullion 
Office, and the rate of discount is 4 per cent : when 
the stock of gold increases to 20 millions, if the rate 
of discount be still kept at 4 per cent, there will be 
no increased demand for discounts, and accordingly 
no increase will take place in the note-circulation, — 
unless an expansion should simultaneously occur in 
the trade of the country and its monetary require- 



ments. If the Bank-rate remained steady at (say) 
4 per cent, any exceptional increase in the amount 
of notes in the Issue department (owing to an excep- 
tional increase in the Bank's stock of gold) would not 
get into circulation. The public, having already as 
much money as it wants at that rate, would not take 
this extra amount of notes off the Bank's hands. But 
in order to get these additional notes into circulation, 
the Bank at times reduces its charge for discounting 
bills to so low a point as 2 per cent. In other words, 
it announces to the public that it will lend its money 
at fully one-half below the usual rate of charge. Who 
would not have money on such easy terms ? Every 
merchant and shopkeeper who has a bill in his posses- 
sion (iQstead of keeping it beside him, as he might 
otherwise do, till it becomes due), takes it at once 
to his bank and gets it discounted. Moreover — as 
almost any kind of business will pay when it can be 
carried on with money borrowed at 2 per cent — people 
extend their business, and new enterprises are under- 
taken. And every increase of business augments the 
number of bOls which have to be discounted. In this 
way the discount -business of the Bank is increased. 
And as the Bank pays the proceeds of many of those 
discounted bills to its customers in notes, it gets its 
surplus stock of paper-money off its hands, and propor- 
tionally increases the active currency of the country. 
With these facts known, a very different feeling 


from that of mere curiosity fills one, as he looks down 
upon the packers at work in the Bullion Court of the 
Bank. The ingots there tossed about are so many- 
bricks added to or withdrawn from the foundations 
of our prosperity. They constitute the narrow basis 
upon which the vast fabric of our monetary system 
is made to rest. The variations produced in the 
superstructure by these ebbs and flows of gold are 
twofold in character : one aflfecting the amount of 
the Currency, the other affecting the rate of Interest. 

The variations produced in the amount of the cur- 
rency, by the operations of the Bank which we have 
just described, are by no means incon- 


siderable. In the autumn of 1853, for 
example, the amount of the Bank's notes in circula- 
tion was £24,500,000 ; in December 1855 it was only 
£18,142,000 — less than three -fourths of what it was 
two years before. Such a variation unquestionably 
seems excessive ; but, instructed by experience, we 
no longer attach to it the momentous importance 
attributed to it by the monetary authorities of the past 
generation. Prior to 1844 — indeed until several years 
later — an expansion of the note-circulation such as 
occurred in 1852-3, would have occasioned, on the part 
of our authorities in monetary science, a great out- 
cry about " over-issues." They would have protested 
loudly against the "depreciation of the currency;" and 
the direst evils would have been predicted as the in- 



evitable consequence of the currency having been thus 
made "redundant." According to them, the public 
should have commenced a run upon the Bank in order 
to convert the " depreciated " notes into gold, and the 
precious metals should have immediately fled from our 
shores. No such dire results followed. As a simple 
matter of fact, we may state that when the currency was 
at its highest point (in 1852-3) there was no drain of 
gold at all, either from internal demand or for export ; 
and the subsequent drain upon the Bank by the efllux 
of specie only assumed a critical magnitude in the latter 
months of 1855, when the note-circulation was at a lower 
point than it had been for several years before, or than 
it has ever been since. Two or three millions more of 
bank-notes in circulation (in 1853 the excess above 
the ordinary amount was about four millions) is found 
to make no impression upon the value of the general 
currency. In truth, the mere amount of the note-cir- 
culation (to which so much importance used to be 
attributed) is of no significance of itself, — i. e., apart 
from the commercial position and monetary require- 
ments of the country. A supply of money, as of any 
other commodity, which is simply adequate in ordi- 
nary circumstances, may become either excessive or 
inadequate owing to a change in the amount of 
demand. An expansion of trade — still more a 
panic, or paralysis of our ordinary credit-system — may 
render 24 millions less adequate for the monetary 


wants of the country than 21 millions in ordinary- 

Contractions of the currency, as well as expansions, 

are effected by means of the discount-operations of the 

Bank. If the Bank refuse to discount its 


ordmary amount of bills, its note-circula- 
tion will be correspondingly reduced. This used to 
be its practice in seasons of monetary difficulty. But, 
recently, it has altered its practice. It no longer con- 
tracts its note-issues below the average : indeed, in times 
of crisis, its issues now are always greater than in 
ordinary times. The Bank raises its rate of discount, but 
it does not seek to reduce the amount of the currency. 
When it greatly lowers its rate of discount, the trading 
classes may take an increased amount of its notes or 
not as they please. But as, when it greatly raises its 
rate, money is in unusual demand, the trading classes 
must take off its notes, whatever be the terms. Dis- 
trust of the ordinary forms of credit, such as biUs, is 
then prevalent ; the other banks and discount-houses 
greatly diminish their operations ; and hence an 
unusual amount of discount -business goes to the 
Bank. In ordinary times, many persons who have 
a discount-account with the Bank prefer to get their 
bills discounted with other establishments, because 
these establishments generally charge somewhat less 
than the Bank-rate. But as, in times of crisis, these 
establishments contract or suspend their discount- 



operations, every one who has a discount-account with 
the Bank has to take his bills to it. So that, in times 
of monetary difficulty, the demand for discounts at the 
Bank is invariably much greater than usual, however 
high may be its charge. In fact, a very high Bank-rate, 
by depressing the markets and causing failures and 
distrust, of itself occasions an increased demand for, 
its notes. A larger supply of money than usual is at 
such times indispensable to the community. And the^l 
Bank now supplies them with what they want, on 
condition that they pay the high terms which it^J 
exacts. Thus, although the Bank expands the cur- 
rency, by an extra issue of notes, when a large stock 
of gold is in its Issue department, it does not seek to 
contract the currency below the ordinary amount at 
times when its stock of gold is unusually diminished. ^ 

These facts are worthy of attention, because they 
throw light upon a question which at present is not 
THE BANK lightly uudcrstood. It is generally sup- 

^^'^- posed that the system followed by the Bank 
is based upon the principle embodied in the Act 
of 1844. This is a mistake. The principle upon 
which that Act was based is now repudiated by the 
Bank Court; the means which Sir K. Peel, Mr Goul- 
bum, and Mr Jones Lloyd (now Lord Overstone) 
desired should be adopted to meet a drain of gold, are 
not employed ; and our monetary system is now regu- 
lated on a method which was not thought of by the 




framers of the Bank Act. The system and the Act 
proceed on different principles. The Act was passed 
for the very purpose of securing a contraction of the 
currency, in proportion as the stock of gold in the 
Bank decreased. But the Bank, now, makes no such 
contraction, — nor even attempts it. How is this ? 

Let us examine the Act, and the motives of its 

In 1844, and for thirty years previous, the predo- 
minant idea with authorities in monetary science was 
a dread of " over-issues." That had been 
the current theory, in connection with 
Bank-crises, from 1810 downwards. It was a pair of 
coloured spectacles which the Bullion Committee left 
as a legacy to the subsequent generation, and which 
became the medium through which all our monetary 
difficulties were viewed. The increase of the Bank's 
issues to the extent of a million or two above the 
ordinary amount, was held capable of producing the 
most momentous consequences.* It "■ depreciated the 

* The expansion of the aggregate note-circulation of England, 
upon which Mr Jones Lloyd (now Lord Overstone), in his evidence 
before the Parliamentary Committee of 1840, founded his charges 
of " mismanagement" against the banks of issue, only amounted to 
two millions and a half. Moreover this expansion took place grad- 
ually, being spread over a period of five years, — the note-circula- 
tion (we take his own figures) being £28,368,000 on the 1st of 
January 1834, and £31,020,000 (its highest point) on the 18th Sep- 
tember 1838. To this " over-issue" he attributed the severe crises 
which occurred between 1836 and 1839. What has his Lordship 



currency," and was the parent of our recurrent mone- 
tary crises. The upholders of this theory, it is true, 
never demonstrated, by a reference to prices, that the 
currency was depreciated * They took that for granted, 
and a good deal more besides. Upon this hypothesis 
they built a currency-system. Tliey held that " over- 
issues " was the main cause of all the drains of gold 
from the Bank. The Bank, they said, from a love 
of gain, increases its notes to the extent of a mil- 
lion or two above its ordinary issues ; thereupon the 
currency becomes redundant, the notes are depre- 
ciated, and an inflation of prices takes place. The 
public, finding the notes depreciated, make a run 
upon the Bank to get them exchanged for gold ; 
and as the gold is of no more value than notes in 
this country, they send it abroad. If the Bank, in 

to say to the much greater "over-issues" in 1852-3, which pro 
duced no crisis, or difficulty of any kind ? 

* So far from the currency being depreciated during the disas 
trous years ending with 1839, the case was the reverse. It was a 
period not of "inflated " but of very low prices. It appears from 
the published statement of Mr Smith, chairman of the Manchester 
Chamber of Commerce, that in the winter of 1836 and spring of 
1837 (when " over-issues" were alleged to have been made by the 
country-banks) the fall in price upon the five great articles of 
"cotton, woollen, silk, linen, and hardware," amounted on the 
average to 37 per cent. He says — " The rates of depreciation on 
all these great articles of production may be gathered without diffi- 
culty from the prices -current of the spring and autumn of 1837, 
— the fall in price varying from 25 to 50 per cent :" the value of 
money, of course, having been temporarily enhanced to a corre- 
sponding extent. 




order to fill up this gap in our currency, issues more 
notes, these notes are immediately brought back to it 
again in order to be exchanged for gold, which is in 
like manner sent abroad. And this goes on till the 
Bank is drained of its gold, and the country is in- 
volved in panic and disaster. " Over-issues," in short, 
in their opinion, was the chief cause of the recurrent 
drains of gold from the Bank, and all our woes. 

Sir Eobert Peel found this theory prevalent — so to 
speak, established. It was the orthodox creed of the 
day. He adopted it, and framed upon it his Bank 
Act of 1844, — by which he sought to secure a contrac- 
tion of the currency whenever a drain of gold should 
commence upon the Bank. By contracting the cur- 
rency at these times, he reckoned he should prevent 
the " depreciation" which (as then believed*) was the 
cause of the drain; and thus save the country from 
the dreadful disasters which such drains of gold had 
unquestionably produced. 

It is a very neat theory. But it will not square with 
the facts. We, who have seen £300,000,000 added to 
the general currency within fifteen years, with so little 

* Proceeding upon the hypothesis that our drains of gold were 
occasioned by "over-issues," which produced a "depreciation" of 
the currency. Lord Overstone, in 1840, said : " The influx and 
efflux of gold constitutes the only proper rule by which to regulate 
the variations of a paper-currency. . . . Upon the principle which 
I contend for, when an export of gold takes place from the country, 
there would be a cancelling of paper-notes to an equal amount." — 
See his evidence before the Parliamentary Committee of 1840. 



effect that it is still doubted by many authorities 
whether there has been any depreciation of money at 
all, and when the loanable value of our currency has 
notably increased, may well be sceptical as to the 
doctrine of over-issues, even if we had not other and 
direct evidence to the contrary. Experience shows 
that the occasional expansions of the Bank's currency 
(although they may foster undue speculation, if accom- 
panied by a low rate of discount), have no tendency 
whatever to make the currency redundant. Of course 
we speak of the actual, not of problematical, expan- 
sions. For example, in 1852-3 we had a greater 
expansion of the Bank's issues than used to occur 
under the Act of 1819, and twice as great as that to 
which Lord Overstone attributed the crises of 1836-9, 
— yet no drain of gold ensued, nor crisis of any 
kind. Take another recent case. In November and 
December 1857, the Bank was empowered to make 
additional issues to the amount of two millions ster- 
ling, — although its note-circulation was then greatly 
above the average. In fact. Lord Overstone main- 
tained that the Bank on that occasion " exceeded its 
proper limits of issue by £6,000,000 or £7,000,000."* 

* ** The Bank has not only been compelled to avail itself of the 
permission accorded to it by the Government [to issue £2,000,000 
beyond the fixed amount], but has actually exceeded its legitimate 
issue by some £6,000,000 or £7,000,000. I know exactly what I 
say, and I maintain its accuracy. ... It has exceeded its pro- 
per lunits of issue by £6,000,000 or £7,000,000."— ^/>eec/i of Lcrrd 



Did any depreciation either of tlie notes or of the 
general currency ensue ? Let facts answer. During 
these two months there was indeed a great alteration 
in prices — a vast change in the relative value of goods 
and money. But it was goods that were depreciated, 
not money. At that time prices were immensely 
reduced below their ordinary level, and the purchas- 
ing power of money was enormously increased. So 
far from the currency being depreciated, owing to a 
redundancy, money was then excessively scarce; and, 
in consequence, the prices of goods experienced a sud- 
den fall to the extent of fully twenty-five per cent.* 

Overstone, 3d December 1857. If this was not " over-issue," what 
are we to understand by the term ? 

* This fact is proved by the subjoined comparison of prices of 
imports before and during the season of panic in November 1857, 
as given in the Commercial Daily List : — 

*' TaUow, which averaged 60s 

Scotch pig-iron, 
Saltpetre, ... 
Do. oil. 

Tea (Congou), 
Pimento, . . . 
Turmeric, ... 

id 60s. is now 50s. 

55s. .. 

. 35s. 

7d. .. 


608. .. 

. 50s. 

65s. .. 

. 45s. 

15s. .. 

. 10s. 

30s. .. 

. 20s. 

70s. .. 


40s. .. 

. 32s. 

135s. .. 


Is. 3d. .. 


5d. ... 


60s. .. 

. 30s. 

120s. .. 


28s. .. 


36s. .. 

. 30s. 

, per cwt, 

per cwt. 
, per lb. 

per ton. 
, per cwt. 

per cwt. 

per lb. 

per qr. 

per cwt. 

per cwt. 
, per lb. 
, per lb. 

per cwt. 

per cwt. 

per cwt. 

per cwt. 

Here is a fall of 27 per cent within a fortnight." — We select this 
statement on account of its precision, although it does not express 
the full extent of depreciation which sometimes takes place in 
seasons of monetary crisis. 



So much for the theory of " over-issues " in regarc 
to depreciation of the currency. Of course, if it be 
shown that the expansions of the Bank's note-circula- 
tion do not really produce depreciation, then the whole 
theory falls to the ground. If there be no deprecia- 
tion, there can be no run for gold in exchange for 
notes, from this cause, — nor any export of the pre- 
cious metal, — nor any consequent panic and crisis. 
But the whole theory is a piece of fancy. The most 
ordinary acquaintance with facts, with banking busi- 
ness during a time of drain and panic, suffices to show 
it is all moonshine. Since the drains of gold were 
supposed to be caused by the public losing faith in 
the notes and sending them into the Bank to be ex- 
changed for gold, the supporters of the theory ought 
to have been puzzled by the fact that, despite this 
paying in of notes, the amount of the note-circulation 
remained undiminished. If the public would not 
have the notes, and returned them upon the Bank, 
there was at least no sign of this. Although seven 
or eight millions sterling of gold was supposed at 
times to be withdrawn from the Bank in this way, 
strangely enough, the amount of the Bank's notes in 
the hands of the public continued unaltered. The 
theorists, indeed, alleged that this was owing to the 
fact that the notes were no sooner sent into the Bank 
for gold than the Bank sent them into circulation 
again. How the Bank contrived to do so, the theo- 



lists did not explain. If tlie notes were so re-issued, 
there must have been a corresponding expansion of 
the discount-business of the Bank; whereas official 
statistics show that the discounts at these times of 
drain used always (until panic was created, and 
placed the Bank itself in jeopardy) to be reduced. 
But to clench the argument, let us say at once that 
the drains of the precious metals, the runs upon the 
Bank for gold, are not made by means of notes at all. 
They are made by means of cheques. To talk of a 
drain of gold upon the Bank being occasioned by peo- 
ple taking their notes to be exchanged for sovereigns 
is sheer illusion. No such thing takes place. It is the 
depositors, not the note-holders, who make the drain ; 
and it is by the presenting of cheques, not by the 
cashing of notes, that the specie resources of the Bank 
are diminished. 

Thus we see (1) that the Bank's issues, as a matter 
of fact, do not produce depreciation of the currency ; 
(2) that the public at times of crisis do not return the 
notes upon the Bank in order to get them exchanged 
for gold ; and (3) that the drain upon the Bank's stock 
of gold is made not by note-holders, but by depositors. 
Thus the theory fails at all points. Moreover, what 
are we to think of a theory which attributes our 
monetary crises to " over - issues," when it is a fact 
that, in every crisis during the last seventy years, 
the very thing which at length stopped the run upon 




the Bank has been a sudden, and sometimes a gi 
increase of its note-circulation, by an expansion of its 
discount-operations ? * 

It is a matter of importance that the actual provi- 
sions of the Act of 1844 should be clearly understood. 
When we discuss the objects or merits of 
a measure, let us consider what its enact- 
ments really are. The opponents of the Act attribute 
to it faults, and its supporters see in it merits, which, 
whether they be faults or merits, do not belong to it. 
The provisions of the Act are very simple. It severed 
the Bank of England into two separate and indepen- 
dent departments. It placed the Issue department, 
which deals with the currency, wholly apart from the 
Banking department, which deals with the deposits 
intrusted to the Bank by the State and the public. It 
enacted that a certain amount of Government securi- 
ties belonging to the Bank should be taken out of the 
banking department, and placed in the currency 
department, as security for an equal amount of the 
Bank's note-circulation; and also, that for all notes 
issued beyond this amount, the Bank should keep in 
the currency department an equal amount of gold. 
This was the whole scope of the Bill: the minor enact- 
ments of the measure being simply a carrying out of 
this leading provision. 

It wiU be seen from this, that although the Act 

* Vide mpra, pp. 89, 99-104, and 109. 




might necessitate contractions of the currency, it did 
not necessitate expansions beyond the ordinary amount 
DOES NOT — such as took place in 1852-3. It per- 
NECEssiTATE fitted thc Bauk to enlarge its note-circu- 


lation in proportion to any increase which 
might occur in its stock of gold ; but it did not enact 
that such enlargement should take place. It conferred 
a power of issue, but the Bank was left free to make 
additional issues or not. When an unusual amount 
of gold is deposited with the Bank, the Act imposes 
no necessity upon the Directors to make an equally 
unusual issue of notes. Such enlargement of the 
note-circulation is not enjoined by the Act,* — it is 
wholly the doing of the Directors. The Act rendered 
compulsory the keeping of a certain amount of gold 
as a security for the notes. It fixed the limit be- 
yond which notes should not be issued. But it did 
not enjoin that the note-issues should at any time be 
enlarged beyond the ordinary amount. Therefore, if 
at times the note-issues of the Bank are exception- 
ally increased, those augmentations are not rendered 
necessary by the Act of 1844. Hence one part of the 
variations in the amoimt of the currency, and one 
part of the still more important variations in the 
rate of discount, are not the consequence of the Act 

* "The House must be responsible, not the Government," said Sir 
R. Peel in June 1844, when the bill was making slow progress, "if the 
present measure failed and a period of iiicreasedissues again arrived." 



at all. If the rate of discount is reduced at times 
to the extremelv low point of 2 per cent, that is 
simply the doing of the Directors. It is a course 
which they take in order to get out the additional 
notes which they have the power to issue ; although 
they are under no obligation to use that power. They 
are right to issue these additional notes if, from any 
cause, there is a spontaneous demand for them on the 
part of the public : but are they right in forcing them 
out, by means of an exceptionally low rate of discount, 
which creates an abnormal demand for them? 

The object of the framers of the Act, we repeat, 
was to prevent ''over-issues," and thereby — according 
to the theory then held — to render impossible that 
"depreciation of the currency" which was believed to 
be the cause of the recurrent drains of gold from the 
Bank, which occasioned such disasters to the country. 
This theory, as we have shown, has been exploded by 
facts. It lingered on until 1857, and possibly it may 
linger in some quarters yet. But the facts connected 
with the crises of 1847 and 1857 fully demonstrated 
its unsoundness, its utter baselessness. The Bank 
Directors found that, so far as it could be carried out, 
instead of being a preventive or alleviator of our mone-r 
tary difficulties, it was only fitted to aggravate them. 
They also found that such contraction of issues was 
very unprofitable for the Bank. Prior to 1857, there- 
fore, the Bank had abandoned the theory upon which 


the Act was founded. It had adopted a new system 
of action. And in 1858 we find the old doctrine of 
^'over-issues" ignored by the Parliamentary Com- 
mittee of that year, and another theory enthroned in 
its stead. 

"The main object of the Act of 1844," says the 
report of that Committee, " was nndonbtedly to secure 
THEORY OF ^^^ variatioTi of the paper-currency of the 
VARIATION. ]jing(jom according to the same laws by 
which a metallic circulation would vary." Before 
considering the merits of this currency -doctrine, 
we feel bound to say that this is a view of the Act 
which certainly was not taken by its framers. Mr 
Goulburn stated explicitly in his letter to the Gover- 
nor of the Bank of England (April 1844), that the 
main object of the Act was to " prevent fluctuations in 
the currency."* If it be said that the Chancellor of 
the Exchequer of the day was mistaken in so repre- 
senting the purpose of the Act, it will at least be 
admitted that Sir Eobert Peel is a good authority in 
regard to his own intentions. Speaking on the 3d of 
December 1847, Sir Eobert Peel said: "The Bill of 
1844 had a triple object. Its first object — that in 

* Mr Goulburn, in that letter, explanatory of the Act, stated 
that the chief object of the measure was " to place the general 
circulation of the country on a sounder footing, and prevent, as 
much as possible, fluctuations in the currency, of the nature of those 
which have at different times occasioned hazard to the Bank and 
embarrassment to the country. " 



which I admit it has failed — ^was to prevent severe 
and sudden contraction, and the panic and confusion 
inseparable from it. But the Bill had two other 
objects, — the one, to maintain and guarantee the con- 
vertibility of the paper-currency into gold ; the other, 
to prevent the difficulties which arise at all times from 
undue speculation being aggravated by the abuse of 
paper-credit in the form of promissory notes" — i.e., 
bank-notes. As the Act was then upon its trial, and 
as he spoke after he had gained experience from the 
recent crisis, Sir E. Peel doubtless took care to repre- 
sent his measure in the most favourable light. Never- 
theless, in the three objects of the Act which he then 
carefully specified, that which the Parliamentary Com- 
mittee ten years afterwards asserted to be the " main 
object " had no place. Again and again, in 1844, he 
stated explicitly that his grand object was to prevent 
sudden contraction of the currency on the one hand, 
and undue expansion on the other, — and to maintain 
the convertibility of the Bank's notes. And the 
measures were adopted by him simply as means to 
an end : not for the sake of carrying out any theory, 
but to accomplish a great practical result — namely, 
in his own words, "to ensure to industry its legiti- 
mate profits." 

The doctrine that the paper-currency of a country 
ought to vary with the scarcity or abundance of gold, 
is a maxim which — with all deference to Lord Over- 


stone — is not compatible with common sense. If the 
doctrine be right, paper-money should never have 
been invented. If it be right, we should cancel all our 
bank-notes at the very seasons when they are most 
needed — i. e., when our metallic currency becomes 
diminished and inadequate. Sir R Peel approved 
of a contraction of the note-circulation at times of a 
drain of gold, because he had been taught to believe 
that such drains are occasioned by a depreciation of 
the currency arising from over-issues. And, adopt- 
ing this hypothesis, he thought that the prevention of 
such " depreciation" would sufiice to keep an ample 
supply of gold at all times in the country. But he 
saw well, and in 1847 fuUy acknowledged, the evils 
which such contraction necessarily occasioned — 
namely, "panic and confusion inseparable from it." 
On principle, therefore, he was strongly opposed to 
*' severe and sudden contraction " — even though he 
believed that contraction was indispensable at times 
when gold was ebbing from the Bank. Had he known 
— what subsequent experience and fuUer investigation 
amply demonstrate — that " over-issues " on the part of 
the Bank are a bugbear, and that no expansion of the 
note - circulation, such as actually occurs, produces 
any depreciation of the currency, he would have seen 
stiU. more reason to protest against great variations 
of the currency of either kind. Make the paper- 
currency vary in amount as gold varies ! " When 



an export of gold takes place, cancel paper-notes to 
an equal amount ! " No gold, no notes ! What a 
reductio ad ahsurdum ! Surely a doctrine wliich 
leads to such a conclusion is theory run mad. How 
would it have fared with the country if, instead of 
William Pitt, a Jones Lloyd had been at the head 
of affairs during the great war with Napoleon ? For 
many years during that war, especially from 1808 to 
1815, there was hardly a sovereign left in the country: 
we needed all our specie to send abroad to maintain 
our victorious army under Wellington, and to make 
those loans and subsidies to the Continental Powers 
without which they could not co-operate with us in 
the field. At such a time — and it may occur again — 
the supporters of the "variation" theory would have 
nothing left to vary. The gold being 0, the paper- 
currency should also be ! To hold such a doctrine 
is to bid defiance to common sense. 

The practice of the Bank, for some years past, has 
been regulated by a different principle from either the 
theory of "over-issues" adopted by Sir Eobert Peel 
in 1844, or that of "variation" as propounded by the 
Committee of 1858. Had the Bank Directors adhered 
to the currency -hypothesis upon which the framers of 
the Act of 1844 proceeded, their practice would be as 
follows. The ordinary note-circulation of the Bank is 
about twenty-one millions ; and, as the Directors now 
keep the rate of discount at 8 per cent when there 


are thirteen millions of gold in the Bank, they evidently 
regard sixteen millions of gold as requisite to justify a 
rate of 4 or 5 per cent, which may be regarded as a fair 
rate when the currency is in its ordinary condition. Ac- 
cordingly, if they proceeded upon Sir E. Peel's theory, 
whenever the stock of gold in the Bank began to fall 
below sixteen millions, the Directors should take mea- 
sures to reduce the amount of notes in circulation to a 
corresponding extent. Thus, when the stock of gold 
falls to thirteen millions, they should reduce the amount 
of their note-circulation from 21 millions to 18 ; when 
the stock of gold falls to ten millions, they should 
reduce their note-circulation to 15 millions * Such a 
course is quite impracticable. The reduction would 
mainly -f- be effected by diminishing their discount- 
operations to a similar extent, — that is to say, by 
refusing to discount perfectly good bills which their 
customers desired to cash. It is needless to say that 

* So far mistaken was Sir R. Peel in regard to the practical work- 
ing of the system which he inaugurated in 1844, that he actually con- 
templated the possibility of the currency being diminished at times 
by the effect of this Bill to only £11,000,000. And in order to 
enable the Bank Directors to carry out this contraction, he specially 
provided that, at their pleasure, they might cancel 3 millions of 
the 14 millions of securities which were to be placed in the Issue 
department, and thereby enable themselves to reduce their note- 
circulation to 11 millions ! 

+ The Bank can reduce its note-circulation in two ways, — either 
by selling a portion of its Government Stock, and cancelling the 
notes which it receives in payment ; or by diminishing its discount- 
operations. The first course occasions a loss to the Bank, the second 
imposes a stiU greater loss upon Trade. 



any sucli reduction of discounts on the part of the 
Bank (^. e., to the extent of six millions) would bring 
our whole fabric of commerce to the ground, and 
would occasion a crisis unparalleled in severity, while 
there were still ten millions of gold in the Bank. 
The Bank, in point of fact, cannot reduce the national 
currency in this way — cannot reduce its note-circu- 
lation from 21 to 15 millions — even if it were to make 
the attempt. It would produce a condition of affairs 
which would require more notes, instead of less ; and 
by attempting to withhold them, by contracting its 
discounts, it would occasion a fatal run upon its de- 
posits. The Directors know this ; and as men of sense 
they neither try to effect such a contraction, nor wish 
to do so. ^11 

It is also to be observed that they do not carry- 
out the " variation " theory tacitly approved by the 
Parliamentary Committee of 1858. If they were to do 
so, they would act as follows. In 1852-3, when the 
stock of gold in the Bank amounted to 22 millions, 
they should have increased their note-circulation from 
21 millions (its ordinary amount) to 36 millions : that 
being the amount they were then entitled to issue — fll 
namely, 14 millions* on Government securities, and 

* This was tlie amount as it stood in 1852. But as the Act pro- 1 
vided that the Bank (on an Order in Council being issued to that 
effect) should replace two-thirds of the note-issues of provincial 
banks which might lapse, the amount of the Bank's note-circulation 
issued against securities was increased to £14,475,000 in Decem- 


22 millions on gold. This course conld only have been 
carried out by means of the discount-operations of the 
Bank ; and as the remarkably low discount-rate of 
2 per cent barely sufficed to get 24J millions of notes 
into circulation, it may safely be concluded that 36 
millions of notes could not have been got into circu- 
lation even though the Bank had reduced its rate to 
1 per cent! Hence to carry out this "variation" 
theory, and make the amount of the currency vary as 
the stock of gold in the Bank varies, is obviously as 
impracticable, and if effected would be as pernicious, 
as to carry out the contractions requisite to an observ- 
ance of Sir R Peel's theory of " over-issues." 

Profiting by experience, the Bank Court have 
devised a new system of action, — and a much better 
THE NEW ^^® ^^^ ^^® Bank than either of the two 
SYSTEM. ^hich in recent times have been stamped, 
the one formally and the other tacitly, with the 
approval of Parliament. This new system pays no 
regard to the amount of the currency. Let the gold 
in the Issue department decrease as it may, the 
Bank takes no measures to contract the amount of 
the currency, by withdrawing from circulation any 
portion of its notes. In like manner, let the gold 
in the Issue department increase as it may, there 
is a point beyond which the Bank wiU not go in its 

ber 1855, and, in consequence of a further addition, now amounts 
to £14,650,000. 



measures calculated to produce an expansion of its 
note-circulation. The Directors carefully observe the 
positive provisions of the Bank Act, but within that 
limit they act as they please. When a certain amount 
of gold is in the bullion-vaults, they are empowered 
to keep an equal amount of notes in the Banking de- 
partment. These notes constitute the reserve of loan- 
able money. It is something apart from the ordinary- 
circulation : it is a supply of money in excess of that 
which is employed in the Bank's ordinary discount- 
operations. It is, in fact, as we have said, the Bank^s 
reserve of loanable money. The Act regulates the 
amount of this reserve, by compelling it to vary with 
every change in the Bank's stock of gold : but the Act 
leaves the Directors free to use this reserve as they 
please. Accordingly, when this reserve is very large, 
the Directors lower the Bank-rate, and invite the trad- 
ing-classes to engage in new enterprises, and to bring 
more bills to be discounted at the Bank. They say at 
such times, "We have a great deal more notes in 
reserve than is usual or than is necessary : therefore 
let us reduce our rate for loans, and induce the public 
to take a portion of them off our hands." Again, when 
this reserve of notes is diminished, they say, " Let us 
charge the public a higher rate for the use of them." 
The Bank Act may be quite wrong in the limit, and in 
the fluctuations, which it imposes upon the amount of 
the Bank's reserve of notes : the Directors have nothing 


to do with that. It is also true that the Directors 
may, and we think do, err to some extent in the use 
which they make of their powers. But let us see, 
in the first place, how this new system is worked. 

It certainly does not obviate those "fluctuations 
which (to use the words of Mr Goulburn) have at dif- 
ferent times occasioned embarrassment to 


OF THE the country." On the contrary, fluctuation 

BANK-RATE. . _ . ,.,11 t-ii , i • 

IS now the order oi the day. fluctuations 
in the rate of interest are the peculiar feature of the 
new system. The rate of usage throughout the country, 
the charge for money on loan, varies with every million 
or half-miUion of gold deposited in or withdrawn from 
the Bank of England. Let. us give a specimen of 
these fluctuations of the Bank-rate, taken from the 
years 1857-58 :— 

1857. Oct. 1, the Eate stood at 5^ per cent. 

Oct. 8, raised to 6 

... Oct. 12, ... 7 

Oct. 22, ... 8 

... Nov. 5, ... 9 

... Nov. 9, ... 10 

.... Dec. 24, reduced to 8 ... 

^ 1858. Jan. 7, ... 6 

Jan. 14, ... 5 

Jan. 28, ... 4 

... Feb. 4, ... 34 ... 

... Feb. 11, ... 3 

A series of eleven great changes, first upwards and 
then downwards, in four months ! In a single month 
the Bank-rate was raised from 5 J to 10 per cent. 
Thereafter, in six weeks, it descended precipitately 



from 10 per cent to 3. During this period, the con- 
dition of our Trade resembled that of a traveller who 
has to cross a lofty pass of the Alps at midsummer, 
and who alternately shivers with cold and broils 
with heat within the space of twenty -four hours. 
Fortunately for the traveller, he usually suffers 
only a temporary inconvenience from these changes ; 
but Trade, when compelled by the Bank to undergo 
such vicissitudes, becomes paralysed by the severity 
of the tortures inflicted upon it. 

The whole commerce and industry of the country is 
affected by those changes ; for — let it be distinctly kept 
THEIR EFFECTS ^^ Hilud — all our trade is carried on by 
UPON TRADE, meaus of bills, which their holders have 
to get discounted in the ordinary course of business.* 
Every commercial enterprise, therefore, every indus- 
trial contract which extends over a considerable 
period, is liable to be vitiated by the alterations 
which are made in the Bank's rate of discount. 
For example, when a Company accepts a contract 
for the execution of some large work, if the Bank- 
rate is thereafter greatly lowered, the contractor 
gains at the cost of the Company. If, on the 
other hand, the rate is greatly raised, the contractor 
finds his expected profits swept away, — perhaps 
himself swept into the Gazette. His profits, unless 
he be a wealthy man, are all that he has to live 

* Vide supra, pp. 95-96. 



upon: and when these are swept away, he must either 
starve (an alternative which is not usually preferred) 
or, by withdrawing money from his business for his 
own support, become unable to meet his engagements. 
The effect is equally serious in the wider department 
of general trade. Our trading and manufacturing 
classes, in embarking on their enterprises, base their 
calculations upon the current rate at which bills can 
be discounted. But if the Bank of England raise its 
charge greatly and suddenly — as it has often done — 
they find that they have to pay double wliat they 
reasonably expected for the ordinary advances of 
trade. Or rather, as the discounting of bills is simply 
the transfer of a certain species of property (like the 
purchase of a house with entry into possession three 
months afterwards), they find their property of this 
kind — and, as we shall see presently, of all other 
kinds also — suddenly depreciated in value, from no 
fault of theirs, nor from any act of theirs of any kind. 
"When gold overflows in the Bank, all sorts of 
trading are promoted to the uttermost; when gold 
becomes scarce, they are remorselessly checked. The 
consequence is, that what is very moderate trading 
at one time is treated as over-trading at another. 
What was very slow trading in 1852, is set down 
as reckless speculation in 1857. In 1852, when the 
Bank had 22 millions of gold in its vaults, it reduced 
its rate of discount to 2 per cent, and, by offering 



money on such easy terms, tempted all classes of 
traders to engage in new operations. There are very 
few kinds of speculation that will not pay when money 
can be borrowed at 2 per cent ; and if the British 
public, in those years of low discounts, did not rush 
into all manner of rash and uncalled-for schemes, it 
was because they knew better what was good for them 
than the Bank did. In due course the wheel turned 
round ; and, after various fluctuations, in the autumn 
of 1855 the Bank-rate was raised to 7 per cent, — 
nearly four times greater than it was two years before. 
In 1857 we had another series of embarrassing fluctua- 
tions : the rate passing from one extreme to the other 
in the course of a few months. In 1862, we once more 
had the rate at 2 per cent. And now — as a set-off to 
the previous very low rate — during the last twelve 
months we have had the Bank-rate standing at the 
extremely high point of 8 and 9 per cent. 

In short, since 1844, there have been fluctua- 
tions in the amount of the currency, and, still more, 
ceaseless and excessive changes in the rate of dis- 
count, such as were unknown under the Act of 1819, 
and which have produced in a severer form those 
embarrassments to the country which Sir E. Peel and 
Mr Goulburn specially desired to prevent.* 

* The feature of our present monetary system which has been 
described in the preceding paragraphs long ago attracted the atten- 
tion of the author ; and by a consideration of it, in connection with 


Very low rates of discount — such as 2 per cent — 
are hardly to be desired even as a means of pro- 
moting trade ; for this reason among others,* that 
as they are certain to be succeeded by much higher 
ones, they tempt traders to embark in enterprises 

* See also pp. 277-80. 

the political aspect of the times, he was enabled, in the spring of 
1855, to predict the monetary difficulties which overtook this 
country in the concluding months of that year, — as well as the pre- 
cise form in which the difficulty arose. In the middle of April, the 
Bank-rate, which had been falling for the previous twelve months, 
was reduced to 4 per cent — which the author regarded as a " low 
rate of discount for times of war," seeing that we had to export 
specie for our army abroad. And, in exposition of the policy of the 
Bank, and of the results which might be expected to ensue from it, 
he wrote as follows : — 

' ' The recent reductions in the rate of discount have been made 
by the Directors of the Bank of England in order to get off their 
reserve-notes; and the process of reduction will be continued until they 
succeed in their object. [It was reduced to34 in eight weeks afterwards.] 
Thus tempted, the mercantile class will come forward and take off 
the notes of the Bank, for the sake of engaging in enterprises which, 
but for the low rate of monetary accommodation, they would not 
have ventured upon. . . . But suppose that a bad harvest comes, and 
we have to increase our imports by large purchases of grain, which 
we have to pay for in so many millions of bullion, — or suppose we 
have to pay large subsidies to foreign Powers, or have to leave the 
provisioning, c&c, of our army to be obtained by purchase in a foreign 
country, — then, all those disbursements being made in gold, the 
amount of that metal in the Bank of England will be greatly dimin- 
ished. The Directors (in order to comply with the Act of 1844, 
which requires that the paper-circulation shall be diminished as the 
gold diminishes) must then * put on the screw, ' by imposing a high 
rate of discount. [Between the 7th September and 20th October 
the Bank-rate was doubled.] The effect of this is, of course, to 
check mercantile enterprise. But it does more than this : it not 
only prevents new enterprises being undertaken, but it will bring 
ruin upon many of the speculations which are going on. These spec- 



wliicli will not pay in ordinary times, and wliicli must 
end in failure sliould the Bank, "before their comple- 
tion, return to its ordinary rate. But there is a great 
distinction to be made in considering the practical 
effects of an exceptionally low rate, and of an excep- 

ulations may be perfectly sound and justifiable ; tbey may be such 
as, in ordinary circiimstances, would have returned a handsome 
profit to tbeir projectors ; but the sudden and great rise in the rate 
of discount will at once blast them with disaster. It does so in 
two ways. Suppose that the speculation be a cargo of foreign goods 
for this country ; and suppose that, before the ship conveying them 
reaches our shores, the scarcity of money produced by the Bank- 
regulations has lowered the price of such goods in the market ; then 
it follows that the enterprise may i^rove wholly abortive, in conse- 
quence of the price obtained by the merchant falling far short of 
that which he had calculated on as sufficient to remunerate him for 
the speculation. Or, suppose the merchant not a millionaire (as 
comparatively few are), and suppose the banks put on the screw 
and urge him for repayment of [or rather, refuse to renew] their 
advances, or decline to discount his bills except at impossible rates, 
while his speculation is still in progress ; then he may be forced into 
the bankrupt-list, although, but for those proceedings, he would 
have remained perfectly solvent. A speculation cut short in the 
midst, however good it may be, is necessarily unprofitable ; and the 
procedure of the Bank in such cases is like setting men to soiv and not 
allowing them to reap^ — Edinburgh Advertiser, YJth April 1855. 

Before the end of 1855, the scarcity of money became so great 
that an Order in Council was passed directing the Bank to issue 
nearly half a million of notes (£475,000), unsecured by coin — this 
being the amount of lapsed issues of country banks which the 
Bank was conditionally authorised by the Act of 1844 to replace. 
And in spite of this, the export of specie in Government loans and 
for the supply of our army, proved so embarrassing that it became 
a matter of discussion in the newspapers, and in political circles, 
whether an issue of £1 -notes should not be had recourse to, — in 
order to allow our sovereigns to go abroad, and at the same time 
provide an adequate currency for domestic purposes. 


tionally high one. The effects upon trade of a very low 
rate of discount are permissive ; the eflPects of a very 
high one (such as the Bank adopts during a drain of 
gold) are, virtually, compulsory. Prudence on the part 
of our traders may, and to a great extent does, prevent 
any over-trading arising from the Bank's exception- 
ally low rates. But no prudence will suffice to pre- 
vent loss when the Bank resorts to the very high rates 
such as of late years it has frequently enforced. 

These high rates have a double effect. They affect 

sales as well as loans. They alter prices, as well as 

the terms of monetary accommodation. 


OF THE Through them the markets are depressed ; 

and the whole goods and property in the 
country are temporarily depreciated to a serious ex- 
tent. The amount of sales which goes on, and must 
go on, at all times is very great ; and upon all of these, 
when the Bank-rate is at 9 per cent, the holders of the 
goods lose heavily. It is upon the import-trade that 
these losses fall most heavily. It takes months before 
an order for cotton, for flax, for Australian wool, and 
foreign produce generally, can be executed ; and when 
the Bank-rate is greatly raised in the period between 
the giving of the order and the arrival of the goods, 
the importer finds all his calculations falsified, and 
instead of a profit reaps only loss. Moreover, at such 
times merchants have to force sales. Yery few of 
them, however wealthy, can afford to hold back, and 



wait for "better times. Their whole capital (as the 
best means of employing it) is embarked in their 
business ; and they must send their goods to market, 
in order to obtain means to pay for the produce 
which they have imported. On the other hand, their 
-customers, having to pay high rates for the usual 
trade-accommodation (^. e., for the discount of the bills 
by which trade is carried on), naturally curtail their 
business : they stop buying altogether, or only bid at 
extremely reduced prices. In this way, during a season 
of monetary pressure, the holders of stocks of goods 
have to force sales ; while at the same time, and from 
the same cause, there are few buyers. In consequence, 
a great fall in prices takes place. 

Thus the mercantile classes suffer in a twofold 
manner from a great rise in the Bank-rate. They 
THE LOSSES havc to pay, it may be, a double price in 
OF TRADERS. ^^^^^ ^^ ^^^ ^j^^'j. ^'^jg (iiscouuted ; and 

also, in consequence of the depressed state of the 
markets, they lose 15, 20, or even 25 per cent on 
their sales of goods. As a considerable portion of 
the import -trade is conducted by means of large 
orders — a whole cargo of goods being sometimes 
ordered by a single firm, — a fall of 15 per cent in the 
home markets necessarily produces heavy embarrass- 
ment, and in some cases actual failure. Say that a 
firm sends out an order to India for £100,000 worth 
of cotton, or to the West Indies or Brazil for a like 


amount of sugar, and that, owing to a rise in the 
Bank-rate, the market price of these goods falls 15 
per cent before they can be sold in this country ; then 
the importing-merchant will suffer an unexpected loss 
of £15,000. It is not every firm that can stand such 
a loss ; but in some cases the loss is still heavier. 
Instead of £15,000, the loss on this single transaction 
may be £25,000. In November 1857, as we have 
shown,* the depreciation of goods amounted to 27 per 
cent in the course of a single fortnight ; in which case 
the loss of the importer on £100,000 worth of goods 
would be £27,000. And in some cases the depreci- 
ation of goods from this cause is even greater. 

Hence it is that so many failures take place when- 
ever the Bank-rate is raised to 9 or 10 per cent. In- 
stead of profits, our importinoj firms reap 


THEIR C0N8E- cTOshing losscs. These firms, in many 
cases, faU by no fault of their own ; and 
each one, as it suspends payment, becomes the centre 
of fresh embarrassments to others. Failures and sus- 
pensions multiply ; distrust spreads ; no one is sure 
of his customer's bill ; credit is contracted ; notes 
are demanded in payment instead of bills; and to 
meet tliis new requirement the Bank's reserve of notes 
is largely drawn upon. — —What follows ? Under the 
present system, as the reserve of notes is diminished, 
the Bank still further raises its rate: the markets 
* See footnote, p. 191. 



become still further depressed ; still greater losses are 
sustained by the merchants ; distrust is swelled into 
panic; and, with the country strewed in ruins, the 
Bank itself becomes helpless. Then the Government 
has to come to its aid — ^by suspending the Act which 
arbitrarily limits its power of issue. Thereafter the pub- 
lic get the extra supply of notes which they want, and 
which are indispensable to them in seasons when dis- 
trust nullifies the ordinary forms of credit. The panic 
is stopped as if by magic : the evil goes no further. 
But so many firms have fallen — so many more have 
escaped only with heavy loss — that trade is paralysed 
for several months afterwards ; and so many thousands 
of the working-classes are thrown out of employment, 
that all classes of the community have good reason to 
remember the calamity. This is a sadly different re- 
sult from that contemplated by Sir Eobert Peel, who, in 
his speech when introducing the Bank Act, expressed 
his desire thereby "to ensure the reward of industry, 
and the legitimate profit of commercial enterprise." 

The startling doctrine has been held, that these great 

calamities entail no loss upon the country. " If the 

aggregate loss had reached £100,000,000," 


THE LOSSES it was Said in 1857, "the country would 

not be a single pound the poorer." To 

a certain extent this is true. Supposing (which is 

not correct*) that foreigners do not at such times 

* Vide infra, pp. 232-3. 


become purchasers of our depreciated goods and 
stocks, the losses of one portion of the commiinity 
are balanced by the gains of another. Wliat is lost 
by the sellers is gained by the buyers. So far, there 
is no national loss of wealth. Nevertheless there 
is a national calamity. Immense losses are expe- 
rienced by certain classes ; and it is poor comfort for 
those suffering classes to be told that another class has 
grown richer upon their spoils. Even if we look at 
the matter as a mere case of wealth transferred, the 
question arises, From whom, and to whom, does this 
transference of wealth take place ? Is it not from the 
industrious producing classes, who have their aU in- 
vested in business ; and to the great capitalists, who 
have their funds lying ready to pick up the count- 
less good bargains which every crisis forces into the 
market? It is simple truth to say, that, in every 
monetary crisis, the purchase of the depreciated goods 
and shares of the mercantile class goes to swell the for- 
tunes of a few millionaires : of men who do not invest 
their capital in trade, but who, as money-dealers, keep 
it in hand on the outlook for good bargains. These 
"hard speculators," as the Times calls them, "pru- 
dently reserve their gold " when they see a season of 
difficulty approaching (thereby stiU further tighten- 
ing the money-market), in order to secure great prizes 
amidst the general wreck. We make no objection to 
such conduct. The world moves on by every one 



attending to his own interests. At the same time, we 
think that every transference of wealth, occasioned by 
such monetary convulsions, is greatly to be deplored, 
— from whatever class it be taken, and to whatever 
class it be transferred. We have as little satisfaction 
in seeing the wealth of the trading-classes swept off 
into the hands of the great capitalists, as we would 
have in seeing the mills and machinery of Lancashire 
suddenly transferred, during some convulsion, from 
the manufacturers to the operatives. 

But these monetary crises do inflict loss upon the 
country, and that to a most serious degree. In the 
PARALYSIS ys^-r following the crisis of 1857, our trade, 
OF TRADE, ^g evidenced by the aggregate of imports and 
exports, fell off to the extent of thirty millions sterling.* 
And as the average annual increase of our trade for the 
last ten years has been fully fifteen millions, the dimi- 
nution caused by that crisis was nearly fifty millions 
— equal to 18 per cent of our amount of trade at that 
time. The loss thus occasioned to the country fell 
alike upon the employers and the employed : the 
former making less profits, and the latter getting less 
wages or employment.-|- So much wealth had been 

* See '* Our Nilometer," given in next chapter. 

+ In December 1857, the return of the state of employment in 
236 factories and workshops in Manchester, showed that, of the 
whole number of these establishments, only 54 were working full 
time with a full complement of hands, — 50 were working full time 
with less than their full complement, — 109 were on short time, — and 
23 were stopped altogether. Of the workpeople usually employed 



witlidrawn from the trading-classes, their position had 
been so enfeebled by the crisis, that they were disabled 
from carrying on their business to the usual extent. 
And the amount of capital which they had lost, being 
for the most part invested by its new possessors in the 
stock and shares of Governments or established com- 
panies, gave no impetus to industry to compensate this 
enfeeblement of the trading and producing classes. 
Thus, then, it is evident that our monetary crises do 
inflict a heavy loss upon the country ; and also, that 
the wealth transferred at such seasons is employed 
with less profit to the country by its new owners than 
by those from whom it has been taken. 

Under the present system, the action of the Bank, 
by alternate fits, increases and diminishes the currency 
— expands and contracts credit. When the currency 
is abundant, the Bank increases it ; when credit is 
easy, it expands it still more. Again, when money 
becomes scarce, the action of the Bank makes it 
scarcer ; and when credit is contracted, it contracts it 
still further, and eventually destroys it. 

To ordinary minds this seems a strange procedure. 

It seems a singularly perverse course that the Bank, 

which has been constituted the great foun- 

WHT IS THIS ? ^ ^ ^ 

tain and reservoir of the national currency, 
instead of regulating the flow in accordance with the 

in these factories, only 15,498 were on fuU time, — 21,766 were on 
short time, — and 9185 were wholly out of employment. 



requirements of the country, should open its sluices 
widest when the supply is least needed, and should 
contract them in seasons when, from a temporary cause, 
a free supply is indispensable to the wellbeing of the 
community. It may seem strange that an establish- 
ment which was instituted at first for the very purpose 
of supplying, by means of its notes, a temporary de- 
ficiency of specie, should, whenever such a deficiency 
occurs nowadays, see in it a reason for withholding its 
usual supply of notes * The first effect of the estab- 
lishment of the Bank in 1694 was to bring down the 
rate of interest ; why should it now reverse its character tA 
and functions, and, by means of its high rates, make 
England the dearest country in Europe for money ? 




* When William III. ascended the throne, the whole amount of 
metallic money in this country did not exceed £7,000,000. The war 
which followed with the Grand Monarque necessitated the export 
of a portion of this specie for the support of our army in the Nether- 
lands, till in 1694 the Government found it impossible to obtain a 
further supply. Then it was that the Bank of England was estab- 
lished ; and its first act, in compliance with its charter, was to 
lend £1,200,000 (nearly one-fifth of the entire specie then in the 
country) to the Government, — issuing its notes (convertible into coin 
on demand) to replace the amount of metallic money thus with- 
drawn. In regard to the efiect of the new establishment upon the 
rate of interest, Mr Godfrey, Deputy-Governor of the Bank, stated, 
that whereas in the beginning of 1694 the Government tallies (a 
sort of exchequer bills) were at a discount of £25 to £30 per cent, 
in addition to the interest which they carried, the Bank took them 
at par, and from the former heavy discount they rose in 1694 to a 
premium. Mr Godfrey also entertained the hope that the estab- 
lishment of the Bank would suffice, in the course of a few years, 
to reduce the rate of interest throughout the country to 3 per cent. 



But there are two sides to every question ; and the 
following are the grounds upon which the present 
system is supported. 

In the first place — as a broad general "basis for the 

present system — it is maintained in many quarters 

that an export of the precious metals is a 
"loss op ^ ^ 

capital" loss of capital, a diminution of the coun- 

THEORT. ,1-1 ii • ii 

try s wealth. And upon this hypothesis the 
following reasoning is based : — An export of gold 
being a loss of capital, the wealth of the country 
is thereby diminished ; and therefore it is only 
reasonable that our merchants and others who 
require to obtain in loan a portion of that capital 
should pay a higher price for it — i.e., by a rise in 
the rate of discount. Accepting for a moment this 
hypothesis, let us see what it is worth. The income 
of our upper and middle classes alone, as represented 
by the income-tax returns, amounts to 350 millions 
sterling a-year. And the actual profits of the nation — 
the increase made annually to the capital of the coun- 
try — amounts to about 130 millions.* Compared to 
this, what is the 4 or 5 millions to which our occa- 
sional drains of gold for export -f* amount ? Supposing 

* This is the conclusion at which the Economist arrives, after 
a careful examination of the matter in a series of articles published 
at the end of last year. A very large deduction from this esti- 
mate may be made without in any way affecting our argument. 

+ Drains of gold from the Bank are not necessarily for export. 
On all occasions when a monetary crisis culminates in a panic, we 



such exports did represent a loss of capital, what 
would it amount to ? It would not be a diminution of 
the national wealth at all, but simply an insignificant 
deduction from its increase. At the end of the year 
in which such loss of four or five millions took place, 
the capital of the country would be £125,000,000 
greater than at the beginning. In fact, before any 
diminution of the national wealth can take place, the 
country must experience a loss, not of four or five mil- 
lions, but of upwards of a hundred millions. 

For example, in 1862, when, in consequence of the 
extraordinarily bad harvest, we paid nearly twice as 
much as usual for foreign corn, this de- 
duction from our annual profits produced 
no actual diminution of the national wealth, 
even though we had to encounter at the same time 
the dreadful calamity of the Cotton -dearth. Take 
1859 as an average year by which, as a standard, 
we may test the relative loss {i.e., diminution of pro- 
fits) which the country underwent in 1862. In 1859 
our imports of corn amounted to 18 millions, — in 1862 
they amounted to 38 millions : an extra expenditure 
to the country of 20 millions sterling. In the former 
year the value of our exported cotton goods was 48 
millions, — ^in the latter year it was only 36 millions. 
Moreover, as the profits of manufacture bear a nearly 

piay safely reckon that two or three millions are withdrawn from 
the Bank of England to meet the requirements of the other banks. 

IN 1862. 


fixed proportion to tlie quantity of the work done, 
quite irrespective of the price of the raw material, 
the quantity of cotton spun or woven is a better test of 
these profits than the value of the manufactured goods, 
which necessarily includes the cost of the raw mate- 
rial (which in 1862 was treble what it was in 1859). 
Now, as the total quantity of cotton imported in 1862 
was only one-half of what was imported in 1859, the 
profits on the manufacture of it must have fallen to a 
nearly similar extent. To this loss (which it is im- 
possible to estimate with correctness) add the extra 
20 millions sterling paid for foreign corn ; and then 
the magnitude of the relative loss sustained by the 
country in 1862 will become abundantly evident. 
Nevertheless, even though that loss amounted to 
£40,000,000, the realised wealth at the end of the 
year must have been much greater than at the be- 
ginning. How absurd, then, to suppose that a drain 
of four or five millions of gold produces a diminu- 
tion of the country's wealth, and makes capital scarce : 
when, in fact, such a sum is not a twentieth part of 
the new wealth that is every year being added to our 

So much for the hypothesis, even if it were well 
founded. But it is radically unsound. An export of 

WHY GOLD gol^ is not necessarily, nor usually, a loss 
GOES ABROAD. ^^ g^jj j^ ^g j^j^g ^j^g paylug of moucy 

in wages, or in purchase ; comparatively seldom is it 



a payment of debt. In the case of a bad harvest, 
or of a great war, the export of gold requisite to 
meet such emergencies is unquestionably a loss of 
the national capital, — or at least a deduction from 
the yearly increase of that capital. But, more fre- 
quently, an export of the precious metals is pro- 
duced by other causes than these. Generally such 
an export takes place simply for the purchase of raw 
materials, — the manufacture of which not merely sus- 
tains the industry, but adds to the profits, of the coun- 
try. Frequently, also, it takes place for the purpose 
of employing a portion of our yearly gains in remu- 
nerative investments abroad, — for example, in the 
guaranteed stock of Indian railways, or suchlike 
undertakings : and in these cases likewise the country 
derives a profit from the transaction. Hence the 
hjrpothesis that an export of gold is a loss of national 
wealth is essentially unsound. We might as well 
call the export of our iron or cotton goods " a loss of 
capital." It is not a diminution of capital that is occa- 
sioned by exports of gold, but a diminution of currency. 
Or rather — merely of that portion of our currency 
which is needed for making payments abroad, in those 
exceptional cases when there is a lack of bills of ex- 
change, and when, also, it is not profitable for our mer- 
chants to make such payments by an export of goods.* 


* See further, pp. 237-8, and also our remarks on the movements 
of the precious metals in next chapter. 


Hence, whatever be the reason for very high rates 
of discount, at seasons when there is a drain of gold 
from the Bank, they are not occasioned by any dimi- 
nution of the national wealth or capital. Usually (as 
we have shown) an export of gold is simply a means 
of increasing the amount of the national wealth ; and 
in absolutely no case does it diminish the amount of 
that capital. In fact, great gains may be accompanied 
by an export of the precious metals ; and such an 
export may be indispensable to their realisation. An 
export of gold may be, and generally is, nothing more 
than a small portion of our yearly savings sent abroad 
in order to make new investments, — or to get the 
materials for more employment and trade, and more 
gains to all classes of our people. 

Moreover, if a loss of capital were really the cause 
of these high rates, how did it happen that in 1862 
the Bank-rate was so low ? In that year, partly from 
a bad harvest, and partly from the calamitous Cotton- 
dearth, the country experienced a greater loss than 
in any year within the memory of the present genera- 
tion. Nevertheless the Bank-rate in that year stood 
at the lowest point which has ever been witnessed— 
namely, at 2 per cent. During the first six months 
of 1862 it stood at 2 J per cent, and in the autumn 
^,cr.«i.Txr it fell to 2. Or take another case of re- 
DiA IN 1863. cent experience. At the close of last year 
there was a monetary crisis in India — so severe that 



prices were reduced 27 per cent. The opium, which, 
according to a low estimate made by Sir Charles 
Trevelyan, ought to have sold at 1400 rupees a chest, 
only brought 879. We need not say that the wealth 
of India is rapidly on the increase, — that it was no 
" loss of capital " which occasioned this extraordinary 
fall of prices. We may add, it was still less a loss 
of capital produced by export of the precious metals 
(which the theory we are now considering regards 
as the cause of our high rates and low prices), — 
for at that very time, and for years before, the pre- 
cious metals had been pouring into India in prodigious 

* The quantity of the precious metals which had been imported 
into India during the previous ten years (t.e., since 1st July 1853), 
is stated by Sir Charles Trevelyan as follows ; — 





















So purely artificial was the late monetary crisis in India, that' 
merchants in Calcutta who had large sums in gold in their posses- 
sion could not get money {i. e. , legal currency) from the Bank, either 
in exchange for, or upon the security of, this gold. The same thing 
would happen during a monetary crisis in this country, to mer- 
chants who had large sums in silver. We may add, that during the 
crisis in Calcutta the Government had some fifteen millions of 
silver-money (the standard-money of India) lying in its Treasuries 
—furnishing the amplest security for the convertibility of the extra 


"We need not carry our exposure of this " loss of 
capital" theory any further. If the charge for money 
on loan depends simply (as this theory supposes) up- 
on the amount of a country's capital, then surely in 
England — the wealthiest and most orderly of coun- 
tries, and the most advanced in monetary economy — 
the Bank-rate should be lower than in any other place 
in the world. 

With less of error, but with equal unsoundness of 

data, it may be alleged that our high rates of discount 

" LOANABLE ^^^ caused by a diminution of the " loanable " 

CAPITAL." Qapita^i Qf ^Q country, — which is but a 

small portion, a mere fraction, of our aggregate wealth. 
In one sense every kind of property is loanable. A 
man may lend his farm or his house, and get interest 
for it in the shape of rent. A carriage, or a horse, or 
a piano may be loaned, and interest received in the 
shape of hire. But by "loanable capital" is meant the 
spare wealth of our people which is deposited in the 
banks.* Let us see, then, if there are any fluctuations 

note-issues whicli were then required, but whicli, in obedience to a 
legalised crotchet, were rigidly withheld. It is in this way that 
communities make miseries for themselves. 

* These Deposits are a source of credit, but only a very small 
portion of them exists in the form of Money. They are a kind of 
ledger- wealth, — representing real property, but which cannot be 
all converted into money at once. Money is the instrument by 
which these bank-dei)osits are effected and acciunulated ; but the 
money, as soon as paid in, is sent on its travels again, and may 
be employed in succession to make new deposits. Cheques also 
are largely used for this purpose. It may safely be stated that 



in the amount of this loanable capital which will 
account for the variations in the Bank-rate. The 
returns of the London joint-stock banks and of the 
Bank of England may be taken as a fair indication of 
the general increase or decrease of banking- deposits 
throughout the country; and we have compiled the 
following statement from the balance-sheets of these 
banks* during the last nine years: — ^| 


Total of these 

Variations of the 
Bank-rate during the 
previous lialf-jear. 


Bank of 

TacA f June 30. 
l^^HDec. 81. 
TQf.H. f June 

1858 {J-« 


iftrtft 'June 
18" \ Deo. 

186^ Dec.' 

1864 June 




6, 5, 4J 
4J, 6 & 7, 7, 6|, 7 

6, 6^, 6 

6, 5i, 6, 7, 8, 9 & 10, 8 

8, 6, 5, 4, 3J, 8 

3, 2^ 

2i, 3i, 4i, 3i, 8 


2J, 3, 4, 44, 5, 4J, 4 

4, 4J, 5, 6, 5, 6 

6, 7, 8, 7, 6, 5, 6 

6, 5, 4J, 4, 3|, 3 

3, 24, 3 

3, 2i,'2, 3 

3, 4, 5, 4, 3^, 3, 3^, 4 

4, 5, 6, 7", 8, 7 

the amount of Money, whether in the form of specie or of paper- 
money, actually existing in the banks of the United Kingdom (the 
Bank of England excepted), is not more than one-fifteenth part 
of their deposits. Of specie, whether in the form of coins or bul- 
lion, the aggregate stock held by the banks of the United Kingdom 
(the Bank of England included) is not more than £20,000,000 ; 
whereas the Deposits amount to about twenty times as much. 
The " loanable money" of the country, therefore, bears only a very 
small proportion to the amount of the "loanable capital." Money 
and Capital (however some theorists may confound them) are very 
different things : the use of the former being simply to transfer, 
and in a small degree to store up, the latter. 
* Namely, the London and Westminster, the London Joint-Stock, 


There is no indication of loss of capital, or diminu- 
tion of loanable capital, here. On the contrary, these 
statistics show a steady and remarkable increase of the 
capital available for loans and discounts. Since June 
1856, the amount of this capital has actually doubled. 
The only year in which there is a marked decrease is 
in 1858; and all through that year the Bank-rate, in- 
stead of rising, was steadily falling. The variations of 
the Bank-rate, as will be seen, do not correspond in 
any way with the variations of the amount of loanable 
capital. For example, in 1857, when the great mone- 
tary crisis occurred, the loanable capital in the pos- 
session of the banks was 20 per cent larger than in 
the previous year ; and 3 J per cent larger than in the 
year following, when the rate was lowered to 3 and 
2J per cent. Again, during the last twelve months, 
for the greater part of which time the Bank-rate has 
been kept at 7, 8, and 9 per cent, the amount of loan- 
able capital has been fully 25 per cent larger than in 
1862, when the rate was only 2J and 2 per cent. 

The theory of " loss of capital," therefore, whether 
in its wider or its narrower form, is contradicted at 
all points by the testimony of experience and facts. 
Evidently there must be some other reason than this 
for the high rates of discount which are imposed by 

the Union, tlie London and County, tlie City Bank, and the Bank 
of London — these beiug the only ones of the present joint-stock 
banks in the metropolis which were estabhshed prior to 1856. 



the Bank at times when a portion of our gold is being 
exported. 4 

The real explanation of these high rates is, not that 
there is less capital than before, but because there is 
SCARCITY OP ^ deficiency in the means of transferring 

MONET. j^_ j^ jg jjqI^ Capital that is diminished, but 
Money. Money is the chief medium by which loans 
of capital are made* — by which property of all kinds 
is transferred ; and it is a deficiency of this medium 
which is occasioned (under Act of 1844) when the 
Bank's stock of gold is reduced. Nothing more. We 
do not here discuss whether the Bank, under the 
present system, does not unnecessarily aggravate this 
deficiency of money; or whether, but for the Bank Act, 
there need be any such deficiency at all. We need 
not observe that although a want of Capital cannot be 
supplied, a want of Money may. We simply desire 
clearly to point out that the cause of the high Bank- 
rate, at times when there is a drain of gold, is a 
temporary deficiency of Money, — a temporary lack of 
the medium by which Capital is transferred, whether 
in loan or in purchase, and one of the forms in which 
Credit is given. This point being established, a great 

* It is not the only medium,— for bills and cheques are largely 
employed for this purpose in ordinary times. But in seasons of 
commercial failures and distrust, these latter instruments of 
exchange fall into temporary disrepute, and their place must he 
supplied to a considerable extent by an increased use of Money, 
in the form of Bank of England notes. 


deal of irrelevant matter is at once eliminated from 
the discussion, and the subject begins to narrow to a 
definite and intelligible point. 

High rates of discount, indeed, are also enforced by 
the Bank upon a different ground from this, and under 
quite different circumstances : i. e., when there is no 
drain of gold at all, but simply an increase of the re- 
quirements of the public for notes — for the instrument 
of exchange which it is the special function of banks 
of issue to provide. This feature of our monetary 
system will be dealt with by-and-by. Meanwhile, 
for the sake of clearness, we shall pursue our exposi- 
tion of the Bank's action daring a drain of gold for 
export, — the object of that action — and the practical 
consequences of it. 

Under the Bank Act, whenever a drain of gold 

occurs, a scarcity of Money is produced. How, then, 

are these occasional and temporary 


RESTRAINS THE dcficieucies of our currency treated? 

EXPORT OP GOLD, ^p,, . . , , , . 

The prmciple adopted by the Bank m 
these cases has been briefly and clearly stated thus : 
— " To restrain the efflux of gold abroad, and to en- 
courage its influx." To accomplish this object, the 
Bank raises its rate of discount. And the effect of 
this operation is as follows: — 

There is always a large amount of bills of ex- 
change payable in London, in the hands of foreign 
merchants ; and there is also a large amount of bOs 



payable in foreign countries held by our own mer- 
chants. These bills usually neutralise one another. 
That is to say, an English merchant who has to 
make payments in Paris and Calcutta, instead of 
sending specie, goes on 'Change, and purchases from 
other English merchants an amount of bills which 
they hold on those cities equal to the sum which 
he has to pay ; and then forwards these bills to his 
creditors in Paris and Calcutta, who obtain payment 
from their fellow -merchants there, upon whom the 
bills are drawn. Eoreign merchants in similar fashion 
discharge the payments which they have to make 
in England : that is to say, they purchase from their 
brother merchants a certain amount of bills payable 
in London, and forward these bills to their English 
creditor, who thereupon obtains the amount from the 
merchants by whom the bills are payable. This is 
the course followed in ordinary times. But, if it 
is more advantageous for him, an English merchant 
may forward to Paris and Calcutta the bills which 
he holds upon these cities, and order the amount to 
be sent to him in specie ; and a foreign merchant, 
if it is advantageous for him to do so, may in like 
manner forward his bills upon London, get them 
discounted there, and withdraw the amount in specie. 
But if the rate of discount be very high in London, 
the foreign merchant is sometimes deterred from send- 
ing over his bills to be discounted, and, rather than_ 


pay SO high a charge for the ready money, may prefer 
not to discount his hills at all, and wait till they fall 
due. When he does so, the object of the Bank of 
England in raising its rate is attained. Tlie payment, 
it is true, must be made all the same. All that the 
Bank eJBfects is to cause a postponement of the pay- 
ment, — ^by deterring the foreign merchant from dis- 
counting his bills in the usual course. Thus " the efflux 
of gold is restrained," so far as foreigners are concerned. 
The English merchant is in like manner restrained. He 
never thinks of sending specie to make his payments 
abroad unless as a necessity or for a profit : that is to 
say, unless when he cannot get bills of exchange upon 
the particular place where his payment has to be made, 
— and when also, owing to a temporary depression in 
the markets of that place, it is more profitable for him 
(not having bills) to send gold than to send goods.* 
By raising its rate, the Bank seeks to destroy his 
advantage in sending specie, by making this mode 
of payment more unprofitable for him than the 
other — i.e., by exportiag goods. Thus the raising of 
the Bank-rate tends to " restrain the efflux of gold 

It also tends to "encourage the influx of gold." But 
in accomplishing this part of its object, the rise of the 

* If a mereliant sends goods abroad, he at once becomes possessed 
of a bill of exchange, payable by the party to whom the goods are 
consigned, which he (the exporting merchant) can forward to his 
foreign creditor in the same place. 



Bank-rate operates in a different way. It produces 

its effect by depressinoj the home market, 

AGES ITS and causing a fall of prices. It acts upon 

IMPORT. . _ _ _ 

our produce-markets, upon the Funds, and 
upon English shares and stocks of all kinds.* By so 
doing, it induces foreign capitalists to make purchases 
of our temporarily depreciated goods. A French 
or American capitalist, for example, at such seasons 
finds he can purchase foreign produce cheaper in 
our markets than he can get it in the countries 
from which it has been brought. The produce of all 
countries is to be found in our markets. We have at 
all times on hand a large stock of sugar, of cotton, of 
flux, of tea, coffee, &c.; and when a great fall of prices 
takes place, foreign merchants supply themselves with 
these goods from our markets. In like manner, when 
the shares, bonds, and debentures of our railways 
and other joint-stock companies, and securities of all 
kinds, become similarly depreciated, foreign capitalists 
become purchasers of them at a corresponding profit. 
Say that foreigners make purchases of this kind to 
the amount of a million sterling. Then a million of 
their money comes to this country — of course, in the 
form of specie: and the object of the Bank is accom- 
plished. But what does this operation amount to ? 
"We have got a million of money more, and have 
parted with a million's worth of property. So far 

* See supra, pp. 211-12. 


the exchange is even. But on what terms has the 
exchange been effected? That depends upon the extent 
to which our markets have been depressed. During 
the monetary crisis of 1857, as we have shown,* 
the fall of prices in our produce markets amounted 
to upwards of 25 per cent. In our share-market 
(consols and some other prime securities excepted) 
the depreciation amounted to about 15 per cent. At 
such a time, if foreign capitalists made purchases to 
the amount of a million sterling, say one-half in goods 
and the other half in shares, we should have experienced 
a loss of capital to the extent of £200,000. 

This is a heavy price to pay for " encouraging the 
influx of gold." The Bank thereby obtains a million 
WHAT IT COSTS ^^^^ of gol^ to pkce lu its vaults ; but 
THE COUNTRY. i\^q coimtry, in paying for this gold with 
its goods, experiences a loss of two hundred thousand 
pounds, — a sum equal to double the annual savings 
of the nation in 1857. In short, for every sovereign 
that in this way is added to the Bank's stock of spe- 
cie, the country pays twenty-four shillings. This is 
called "correcting the exchanges." Considering the 
many failures and widespread commercial embarrass- 
ment which attend such depreciations of the property 
of the country, it would really be much better for us 
to purchase gold abroad at this price — i e., giving 24s. 

* Vide supra, footnote, p. 191 ; and also, for the depreciation 
in 1836-7, see footnote, p. 188. 



for every £1 — than to continue our present system. 
Yet what would be thought of the matter if it were 
put in this form? 

This is a very costly method of upholding our mone- 
tary system. The Bank, indeed, loses nothing by it. 
WHAT THE On the contrary, every rise of the rate of 
BANK GAINS, discouut iucreascs the profits of the Bank. 
Its dividends, like those of our banks generally, are now 
largest when the country suffers most from monetary 
embarrassment. To the community, the injury is 
twofold. There is, first, the national injury — the loss 
of capital occasioned by a transference of a portion of 
our goods, when exceptionally depreciated, to foreign 
capitalists. Secondly, there is the injury to indivi- 
duals, — to certain classes of our people to the profit 
of others : the sweeping away (what the late Sir 
Eobert Peel respected so much) " the legitimate profits 
of industry," — the loss of reputation to solvent firms 
which are forced to suspend, — and the bankruptcy 
of others who, but for the depreciation of their goods 
caused by the tightness of the money-market, would 
have been able to meet all their engagements, and 
to continue their business as usual. 

These are great evils. How far is it necessary that 
the country should undergo them ? Before answer- 
ing this question, let us see how long the gold thus 
exported — either as a matter of State necessity, or as 
a means of obtaining profit and employment for our 


people — remains abroad. Is it lost to us ? — or is it 
so long of returning that we must act as if it were 
lost to us ? 

Any one who has watched, either in his own expe- 
rience or as recorded in our annals, the ebb and flow 
of the precious metals, must have been 


NATURE OF struck wlth the fact that the drains of specie 


which occasionally take place are very tran- 
sitory. A few months, sometimes a few weeks, is the 
ordinary limit of their duration. In most cases, the 
gold simply does its work, and returns. In the great 
crisis of 1857, the whole amount of specie sent from 
this country to the United States, in the two months 
preceding the suspension of the Bank Act, was 
£1,125,000; and before the expiry of two months 
afterwards (during which time the Bank Act had 
been suspended, the note-issues enlarged, and the rate 
reduced to 5 per cent), we had not only got back 
from America all that we had sent thither, but nearly 
three times as much — namely, £3,200,000. In fact, 
an export of gold suffices to annihilate the causes 
which produce it. It is the very thing that is 
required to restore the temporarily- disturbed equi- 
librium, and it " rectifies the exchanges " of itself. 
Unless in the highly exceptional time of a great war, 
such as that which we waged with the first Napo- 
leon, — when we had to make vast loans and subsidies 
to foreign Powers, and had to send abroad, year after 



year, large sums in specie for the support of our army 
in the field, — an export of five or six millions of gold 
suffices to stop any drain, by meeting all the require- 
ments which occasion it. These requirements are oc- 
casioned simply by a temporary deficiency of bills, — 
owing to the payments (it may be bonus) which we 
have to make to some particular country being in ex- 
cess of the ordinary amount, and also to the condition 
of the markets of that country being simultaneously 
such as renders it unprofitable for our merchants to 
export thither an extra quantity of goods. The export 
of gold at once puts an end to this exceptional defi- 
ciency of bills : it acts instead of bills of exchange — 
in supplement of our deficient supply of them, — and 
restores the normal equilibrium. 

The cotton-crisis of 1862 was the most extensive 
derangement of our commercial relations which has 
ever occurred, and it is hardly possible to conceive 
a greater. Such a transference of a great branch of 
our trade from a country (the United States) with 
which we traded largely, to others which took from us 
little of our goods, necessitated payments in specie 
to an unusual extent in carrying on that branch of 
trade. Yet, after all — thanks to the energy and en- 
terprise of our merchants, — the drain of specie which 
it occasioned never assumed really formidable propor- 
tions. As regards India, that sink of the precious 
metals — to which the greater part of our cotton trade 



was transferred, — although the specie which we send 
thither does not return to us, our trade with that 
country commensurately increases, yielding increased 
profits to our merchants. And moreover, by manu- 
facturing the raw materials we obtain from thence, 
and exporting them, we obtain from other countries 
(notably from Australia) a supply of the precious 
metals equal to the amount which we have sent to 

In the ordinary course of commerce, or of financial 
operations, the gold which we send to other countries 
MOVEMENTS c[uickly returns to us. We repeat, — it 
OP SPECIE. simply does its work (makes a payment) 
and comes back to us. The movements of gold, in 
fact, are like those of a cheque which is never can- 
celled. The man to whom gold is paid can make 
no profit by keeping it. He passes it on to another, 
who for the same reason acts likewise, and so on, — 
the gold sufficing to make payments, as a cheque 
does, and, like a cheque, having no other use. A man 
may, indeed, encrust the walls of his room with gold- 
coins, or he may paper it with a choice selection of 
bank-notes of different countries, — and it is hard to 
say which of these modes of decoration would be the 
better-looking, or the more insane. But the public 
votes him a lunatic, for employing the instruments 
of purchase in a way that purchases nothing. 
If a man pays another with a bill of exchange, the 



receiver may keep it for several months, — for it is 
equivalent to an interest-bearing security ; but no one 
keeps gold or cheques, for they are sterile. Gold is 
profitless unless it circulate : to circulate is its grand 
use and its normal habit. And as it circulates, flitting 
from country to country, making payments or pur- 
chases, and circling back again, a momentary ebb of 
the precious metal may occur in one country while a 
plethora is produced in another. But this is merely 
transitory — a state of unstable equilibrium which is 
over in a few weeks' time. Why, then, should these 
temporary ebbs of gold put us in a flutter ? And yet, 
when they occur, we actually allow them to shake 
down our whole fabric of trade and industry. 

In order to check these merely temporary ebbs of 
gold, the Bank adopts measures which not only (as we 
INTERNAL ^^^^ showu) luflict scrious injury upon the 
DRAINS. country, but also which in many cases im- 
peril its own position. In trying to stop an external 
drain upon its resources, it produces an internal one. 
The means which the Bank employs to check a 
drain upon its gold for export, are such as inevitably 
create an increased demand for both gold and notes 
at home. It does so in this way. By raising the 
Bank-rate to 9 or 10 per cent, a great fall of prices is 
produced in the home markets, occasioning heavy 
losses to the holders of produce and goods of all kinds. 
Many failures take place ; distrust spreads ; notes in 


many cases are required in payment, instead of bills 
or cheques ; and lience a drain of notes takes place 
upon the Bank. A drain for notes, under our present 
system, is as fatal to the Bank as a drain for gold.* 
And the more the Bank raises its rate, in order to 
check this demand for its notes, the more numerous 
become the failures, the more widespread becomes the 
distrust, and the greater the drain upon its reserve of 
notes. And also of gold, — because many of the banks, 
in order to meet the panic, have to provide themselves 
with a larger supply of specie — by cashing their secu- 
rities, and withdrawing the amount in gold from the 
Bank. In this way, under the present system, an 
external drain inevitably 'produces an internal drain 
also, — which is like lighting a candle at both ends. 
Indeed, during the last crisis (1857), the amount of 
gold withdrawn from the Bank of England to meet 
the internal drain was twice as large as the amount 
which during the same period was sent abroad ; while 
the Bank's reserve of notes was in like manner en- 
croached upon, owing to the increased demand for 
money which the Bank's operations had produced in 
the country. 

* As the amount of notes whicli the Bank is permitted to issue is 
limited by the amount of gold in its possession, it is all the same 
whether the demand is for notes or for specie. If the depositor 
calls for notes, the reserve of notes is, of course, correspondingly- 
lessened ; if he calls for gold, the Bank has to cancel notes to an 
equal amount. 



Thus, tlie crises which ever and anon inflict wide- 
spread ruin and suffering amongst us, are mainly of 
our own making. Temporary difficulties we aggravate 
into stupendous calamities, — panics and bankruptcies 
by Act of Parliament. The recipe to produce mone- 
tary crises is very simple. They can be made at any 
time by the action of the Bank. Eaise its rate to 
8 per cent, and "uneasiness" is produced: markets 
droop and losses begin. Eaise it to 9 per cent : the 
losses become heavy, — failures and suspensions mul- 
tiply, — and distrust spreads. Eaise it to 10 per cent, 
and we have a panic and a crash. Or if 10 per cent 
is not enough, another turn of the screw will do it. 
The Bank can always " correct the exchanges," * and 
ensure a commercial crash, by raising its rate to 10 
or 11 per cent. 

The principle of restricting the export of the pre- 
cious metals, which most Governments acted upon in 

* The term "favourable" or "unfavourable," applied to tbe 
rate of exchange upon foreign countries, is a purely banking phrase. 
The state of the exchanges, as we have shown (pp. 221-2), has no 
necessary connection with either gains or losses on the part of a 
country ; it simply indicates a fact — namely, whether more specie 
is coming in or going out. This is a matter which has nothing to 
do with the profits of Traders, but it is of great importance to 
Bankers, — who, when there is a demand for specie, must keep on 
hand a larger stock of it than usual to meet the requirements of 
their customers. This causes a temporary diminution of bankers' 
profits. And hence bankers term the exchanges "favourable" 
when specie is flowing into the country, and "unfavourable" when 
it is flowing out. This, and nothing more, is signified by the 
" state of the exchanges." 


medieval times, has been condemned for the last two 
hundred years. No one would venture 


OP AN EX- nowadays to propose an export-duty on 
the precious metals. Nevertheless it is 
only the truth to say that such a frank return to 
an exploded principle would be wiser, and more 
advantageous for the community, than the adoption 
of it in the form which is at present in use. Such 
an export-duty, rising and falling with the varying 
amount of specie in the Bank of England — as the 
rate of discount does at present — would " correct 
the exchanges" quite as effectually as the present 
system. And it would have this great advantage, that, 
without imposing any burden upon those who export 
the gold, save that to which they are at present sub- 
jected, it would relieve the internal currency of the 
country from the convulsions which now take place so 
frequently. The few individuals who for their own 
advantage export the gold, would have to pay for so 
doing, although not more than they do at present ; 
while the community at large, who are quite content 
with bank-notes, would not be subjected to an arti- 
ficial scarcity of these indispensable instruments of 
exchange. If country is to fight with country, in 
this barbarous fashion, for possession of the yellow 
ore, an export-duty is certainly the cheapest way in 
which we can wage the conflict : — 

"Let those who make the quarrel be the only ones who fight." 




We say this for the purpose of bringing more clearly 
into view the real import and working of our monetary 
system. " 

It is worthy of notice that, in times of crisis, the 

Bank of France adopts a different system from that 

pursued by the Bank of En^fland. The Bank 


THE BANK of Euglaud seeks to obtain gold by raising 
its rate of discount: whereby our whole 
industry is checked and employment is restricted. 
The Bank of France, on the other hand, avoids rais- 
ing its rate to a similar extent, — it refuses to check 
industry, and subject the community to such a strain; 
nevertheless, it obtains gold by a process quite as 
efficient as that adopted by the Bank of England. 
When the drain upon it is great, it purchases com- 
mercial bills upon other countries, as a trader might 
do, forwards them to be cashed — at London, Vienna, 
Hamburg — and gets the specie : or it contracts with 
some great capitalist to do this for it. The differ- 
ence between the two methods is, that in supplying 
itself with specie, the one Bank gets high rates of 
discount, and the other gives them. The Bank of 
England, in times of crisis, makes a profit at the 
expense and to the detriment of the community; 
the Bank of France, at such times, incurs a loss in 
order to fortify its position and fulfil its engagements. 
When the Bank of France, keeping its own rate at 7 
per cent, buys up bills upon London, where the rate 



of discount has been raised (we shall say) to 9 per 
cent, — then the Bank of France loses fully 2 per cent 
on the bullion which it thus obtains; but the ines- 
timable advantage is attained of sustaining commer- 
cial credit, and preserving the national industry from 
the convulsions of panic and the pressure of exorbi- 
tant rates of discount. In either system the remedy 
is temporary: but so also (it must be remembered) is 
the drain. The Bank of England seeks to postpone 
payment by deterring foreigners from discounting their 
bills upon London. The Bank of France does not 
adopt this course to the same extent, but seeks to 
meet the demands that may be made upon it by taking 
means to obtain a supply of specie. The one Bank 
throws the burden upon the country; the other 
takes a large portion of it upon its own shoulders. 
The Bank of France assumes that those who profit 
by banking, and by the issue of notes, should bear 
the expenses incidental to banking. To provide a 
supply of gold or notes to meet the requirements 
of its customers, is regarded by the Bank of France 
as a duty incumbent on itself, and which it must 
observe, even though it be at a loss. The Bank of 
England holds the opposite doctrine : it takes no 
steps to obtain specie, but simply deters its customers 
(at what cost to the community we have shown) from 
asking for gold, — or for notes either. 

In contemplating the features of our monetary 



system which have been passed in review, it is mani- 
fest that its operation inflicts serious in- 


THE COUNTRY jury upon the country. This fact does 


not of itself justify a condemnation of 
the system. It may be that these losses are un- 
avoidable, — that the sufferance of them is necessary 
in order to avoid still greater evils. Before deter- 
mining this point, it must first be clearly under- 
stood what is the object which the public desire to 
attain. What are the great ends which Parliament 
and the country desire to accomplish by means of 
monetary legislation? Till this point is settled, all 
argument is aimless, and discussion is useless. It 
is impossible to judge of the means, unless we know 
with precision the end which they are meant to 
serve. What, then, is the definite object, or objects, 
of our monetary legislation ? ^ 

There was no ambiguity on this point in the views 
of the late Sir Eobert Peel. As a practical states- 

peel's object ^^^' ^^ -^^^ ^ practical object, a definite 
AND MISTAKE. gjj(j^ jj^ vicw; aud he clearly and repeatedly 

stated it. That object was, — " to ensure the just 
reward of Industry and the legitimate profit of com- 
mercial enterprise." * And we know no better defini- 
tion of the true aim of monetary legislation. With a 
view to this end, he desired to prevent severe mone- 
tary contraction, because, in his own words, " panic and 
* Vide liis si)eecli on May 6, 1844. 


peel's object and mistake. 245 

confusion are inseparable from it," — inflicting heavy 
losses upon the industrious classes ; and, for the same 
purpose, he desired to prevent " over-issues," — as 
these (according to the theory then prevalent), by pro- 
ducing a " depreciation of the currency," imperilled 
the convertibility of the note, by causing drains 
of gold for export. Thus, in brief, the object of Sir 
E. Peel was : to protect legitimate trade from losses 
inflicted upon it by monetary convulsions, and also 
to guard the convertibility of the note. The means 
which he took to ensure the first of these ends, being 
based upon an erroneous h3^othesis, have totally 
failed. On the other hand, the convertibility of the 
note has been fully maintained. But when was it in 
danger ? When has the public lost faith in the Bank's 
notes ? Not, certainly, in the experience of this gen- 
eration, nor of that wliich preceded it. We have no 
fear for the credit of these notes, — neither has any 
sane man in the country. These notes were as safe 
under the Act of 1819 as under that of 1844. Their 
value was as unquestioned in 1826 as in 1847. We 
may say more : the validity of the note was as un- 
questioned during the crises of 1793 and 1797, as it 
has been since the passing of the Acts of 1819 and 
1844. In the worst monetary crises which have over- 
taken this country during the last hundred years, so 
far from the public mistrusting these notes, their 
great desire has been to get them. And the best 



proof of this is, that the moment the public got a 
free supply of these notes, the panic was at an end. 
These notes have been the very thing which people 
have made a run upon the Bank to get. It is not 
gold that is wanted, but discounts — the ordinary 
accommodation of commerce. Let the public have 
notes, and that is all they care for. This is proved by 
the evidence given before every Parliamentary Com- 
mittee that has investigated the subject.* In disre- 
gard of this fact, the Act of 1844 took the most strin- 
gent precautions against a danger which never occurs, 
and totally overlooked a danger which is now more re- 
current than ever. In securing the convertibility of the 
note, the Act only accomplished what was sufficiently 
effected before ; and as regards the great end which its 
framer had in view, and to which the maintenance of 
convertibility is an accessory, the Act has failed entirely. 
But if the illustrious framer of the Act was mis- 
taken in the means which he employed, there was no 
mistake or ambiguity as to the object of his monetary 
legislation. And if we are to act in his spirit, and ad- 
here to the great end which he had in view, we must 
resume the work where he left off, and profit by the 
light which subsequent experience has thrown upon 
the subject. We must ascertain what is the practical 
mistake which has caused the object of his measure to 
miscarry ; and what are the means by which our mone- 

* See " Our Monetary Crises," mpra, pp. 88-91 and 99-110. 

peel's object and mistake. 247 

tary legislation may be brought into harmony with the 
interests of Trade, and be made conducive to ensure 
to Industry its legitimate profits. 

Statesmen in this country are so engrossed by their 

Parliamentary duties that they have little time fully 

to study for themselves questions of econo- 

IT IS NOT A "^ ^ 

CURRENCY mical science. They naturally avail them- 
selves of the opinions and theories of 
others: and monetary science is, or has been made, 
so misty a subject, that it is not strange that mistakes 
should have occurred in applying its principles to 
practical affairs. The object of Sir Eobert Peel was 
admirable ; the means which he took to accomplish 
it were mistaken. Had the monetary crises which 
periodically overtake this country been caused by 
an unsafe Currency, his precautions would have been 
well-directed. As the fact stands, they have been 
wrong aimed. The currency was perfectly sound. 
But the precautions which he took to strengthen it 
have landed the Bank in a new dilemma, and created 
for the country greater embarrassments than before. 

It is not currency, but banking, embarrassments 
which occasion our recurrent disasters. No one loses 
BUT A BANK- faith lu the note -circulation. A drain 
iNGONE. upon the Bank does not arise from the 
public demanding gold in payment of its notes. It 
is not the note -holders, but the depositors, who 
make the drain of gold. It is not the public, but the 




Bank's own customers, who make the inroad upon its 
stock of bullion. This is obviously a purely banking 
difficulty, — a difficulty which the Bank itself ought 
to meet. The community is no more called upon, 
whether actively or passively, to provide means for 
the Bank's carrying on its banking business, than 
to do the same for other establishments. To meet 
the requirements of depositors by payments in gold is 
the ordinary condition upon which banking business 
is carried on. 

The banks of Ireland and Scotland, when an unusual 
demand for specie is made upon them, take active 
measures to provide themselves with the 
commodity which they are bound to 
supply. They sell the securities which they keep in 
hand for this purpose, and with the cheques re- 
ceived in payment they obtain the required amount 
of specie. Why should not the Bank of England, in 
similar circumstances, take similar steps ? So far as 
profit is concerned, it does not matter to the Scotch 
and Irish banks whether their reserve of securities 
be payable in London or in Paris and Amsterdam. 
They draw the gold from London simply because 
they can provide themselves from that quarter more 
promptly than from the Continent. But Paris, Brussels, 
and Amsterdam are as near to London as London 
is to Dublin and Edinburgh. Why, then, should 
not the Bank of England keep in hand an amount 



of Continental securities, in order to provide specie 
to meet exceptional demands upon the part of its 
customers ? Yet the Bank does nothing of the kind. 
Instead of this, it raises its rate of discount (which 
regulates the rate all over the country), and compels 
the whole community to suffer in order that specie 
may be brought to the Bank, or that the demand upon 
it (whether for gold or for notes) may be stopped. 
Because a few individuals — a very small section of its 
customers — whether Englishmen or foreigners, require 
payment of their deposits in specie, the Bank raises 
its rate to an exorbitant height upon the whole com- 
munity, — thereby depressing our markets, sweeping 
away the " legitimate profits of industry," and some- 
times covering the country with bankruptcies. 

It is obvious that these evil results would to a 
great degree be obviated if the Bank were to make an 
adequate provision for its banking liabilities : say by 
keeping a portion of its reserve invested in the stock 
of foreign Governments, — just as the Scotch and Irish 
banks keep a portion of their reserves in the form 
of Consols. By making these investments at a time 
when gold is flowing into its vaults, and selling them 
at a time when gold is ebbing away from it, the 
Bank would lessen the effect of these fluctuations, and 
would meet its liabilities in the most natural and 
legitimate manner. Or, in lieu of this process, the 
Bank might adopt the system pursued by the Bank of 



France, — i. e., of buying foreign bills, when an excep- 
tional demand for specie arises. It matters little 
in what form the object is attained. But that it 
ought to be attained — that the Bank ought to meet 
its banking liabilities (in other words, the legitimate 
demands of its depositors) is, wq think, indisputable. 
The question is simply one of fair dealing. jj 

The Bank trades with other people's money, — it 
makes its profits by lending out the sums deposited 
THE BANK '^^^^ ^^» ^ cxccpt thc Small portion which 
versus teade. ^^ ordinary times is found sufficient to 
meet the demands of its depositors. "When extraordi- 
nary times come, it is the Bank's duty to increase its 
stock of gold, that it may discharge the liabilities 
which it voluntarily accepted. All profit and no loss 
is a condition which is no more applicable to banking 
than to other kinds of business. Yet, looking at the 
present practice of the Bank, one would think that it 
is Trade alone that is to suffer in hard times, — that 
the profits of banking are sacred, — that it is all right 
that the community should suffer during a monetary 
crisis, but that the banks at such times should only 
reap increased profits. This is a strange state of things. 
We have shown to demonstration that the high rates 
which the Bank imposes, are not caused by any " loss 
of capital" — ^whether as represented by the aggregate 
wealth of the country, or by the "loanable capital" in 
the banks. Nor are they caused by any distrust of its 


notes. The high rates are imposed simply because 
the Bank has not enough of gold (or of notes, which it 
can get for gold) to meet the liabilities of its banking 
department. Instead of keeping a reserve of securities 
convertible into specie, in order to meet an exceptional 
increase in the demands of its customers — as the Scotch 
and Irish banks do, — the Bank not only shirks this 
obligation, but does so in a manner which adds greatly 
to its profits. And when it raises its rate of discount, 
all the other banks willingly follow its example. Thus, 
not content with their profits in fair-weather times, 
our banks now make still larger profits in times of 
difficulty. The " hard times " which should fall upon 
themselves, the banks shift on to the shoulders of the 
community. The very seasons which ought to entail 
upon them a diminution of gains are nowadays con- 
verted by them into their richest harvests. 

Actually, however, this weakness of its Banking 

department is no fault of the Bank's. The weakness 

is purely artificial. The Bank would be 


ITS BANKING amply provided to meet all its banking 

DEPARTMENT. -.,.... ... 

liabilities it it were allowed to have 
free use of the gold in its possession. This it 
has not. Nearly seven millions of its stock of 
specie are at all times, even in its hour of greatest 
need, wholly withdrawn from its use. This was the 
leading provision of the Act of 1844. Sir R Peel 
believed that the main cause of all our monetary 



troubles was owing to the defective state of the 
currency, — to over-issues on the part of the Bank, 
and a loss of confidence in its notes on the part of 
the public. We now know that this idea was quite 
erroneous. But, acting upon it, he directed his atten- 
tion entirely to the Issue department of the Bank. 
He enacted that all times and under all circumstances 
a large amount of gold should be kept in this depart- 
ment. By so doing, he crippled to a corresponding 
extent the Banking department : withdrawing from 
it seven millions of gold, — an amount almost equal to 
that which in previous times had been considered an 
adequate reserve for loth departments {i.e., to cover 
alike the note-issues and the banking liabilities of 
the establishment).* So imbued was he with the idea 
that it was the note-issues of the Bank that were the 
source of its weakness and the cause of our troubles, 
that on the 13th of June 1844 he said :— "The Bank 
can always cover its notes, — but by a tremendous sac- 
rifice of the mercantile classes. That is what I wish 
to avoid." Yet experience has proved to demonstra- 
tion that the " tremendous sacrifice of the mercantile 
classes," which he wished to avoid, now occurs in a 

* The average stock of gold held by the Bank of England during 
the twenty-two years previous to 1844 was £8,000,000. The Bank 
of France, which has a note-circulation of £31,000,000 (about one- 
half greater than the Bank of England's), sometimes sees its specie 
reduced to 6| millions, without raising its rate beyond 7 per 
cent, and without the occurrence of panic or crisis of any kind. 


worse degree than ever, not from any difficulty in 
maintaining the convertibility of the notes (which 
is never endangered), but from the weakness of the 
Bank in its banking department. 

The want of elasticity in the Banking department 
is the real cause of the "sacrifice of the mercantile 
classes," which so repeatedly occurs under the Act of 
1844, despite the earnest desire of its framer to the 
contrary. Sir E. Peel thought only of securing the 
convertibility of the notes : and he overlooked the 
enfeeblement which his enactments for this purpose 
inflicted on the banking department. His procedure 
was like that of an engineer who fortifies the part 
of a position which will not be attacked, by transfer- 
ring to it the armaments which previously guarded the 
key of the position. Sir E. Peel did not perceive the 
weak point of his Act. He did not see that, under 
it, monetary crises, and the sacrifice of the mercan- 
tile classes, which he so sincerely deplored, would of 
necessity become more frequent and disastrous than 
ever. After the crisis of 1847, he saw and acknow- 
ledged that the "first object" of the Act — namely, 
"to prevent the occurrence of panics and crises, such 
as had occasionally before inflicted great injury upon 
the country" — had "failed:" but even then he failed 
to see the reason why. 

Many seasons of monetary pressure, which would 
hardly have been felt as embarrassments under 



the Act of 1819, occasion panic and overwhelming 
HOW THIS disasters under that of 1844. A few words 
IS CAUSED. ^^j2 show how this evil and unexpected 
result is produced. For every note issued beyond 
the arbitrarily fixed sum of £14,650,000, the Act 
requires that the Bank shall hold a correspond- 
ing amount of gold. As the ordinary amount of 
notes required for the wants of the public is 
£21,000,000, it foUows that £6,500,000 is the lowest 
amount of gold that must be in the Issue depart- 
ment to allow of these twenty-one millions of notes 
being kept in circulation. And, taking into account 
the requirements of the branches of the Bank and 
other matters, this sum may be stated in round num- 
bers at seven millions. ^ 

Thus, when seven millions of specie are in its pos- 
session, and twenty-one millions of notes are in cir- 
SEVEN MILLIONS culatiou, all the notes which the Bank 

NULLIFIED, j^g allowed to issue are in the hands of 
the public. When this point is reached — when the 
bullion in its possession has sunk to this level 
the Bank cannot issue a single additional note.' 
^Neither can it part with a single sovereign. As 
discounted bills fall due, it may discount others to 
an equal amount ; but that is the most it can do. 
However pressing be the emergency, it cannot extend 
its discount-accommodation one iota. What is more, 
when an actual crisis occurs, it cannot even continue 


it. Its Issue department being literally shut up, it 
must withdraw from its discount-business whatever 
amount of notes may be called for by its depositors. 
Otherwise, if a depositor were to ask at such a time 
for even a £5-note, the Bank could not give it, — 
its legal power to issue notes being exhausted. And if 
the depositor were to say, " Then give it me in gold, 
of which you say you have seven millions," the Bank 
must reply that that form of issue is shut up too, — 
because every sovereign of these seven millions is needed 
in its own vaults, in order to avoid an infringement of 
the Act. And compliance with the Act is the condi- 
tion of its existence : any violation of it involves a loss 
of the Bank's charter. Thus the Bank at such times 
cannot make payment of a single note or sovereign 
to any of its depositors, except it withdraw a similar 
amount from its discount-operations, which are the 
mainstay of trade and credit. And this artificial 
dilemma occurs at times when, as every one knows, 
there is a greatly increased demand for discounts at the 
Bank of England, owing to the curtailment of discounts 
on the part of the other banks and discount-houses. 

This is the grand error of the Act of 1844, — 
so far as that measure relates to the Bank of England. 

It is a strange spectacle to see nearly seven millions 
of ffold thus condemned, by a legislative 


CRISES. embargo, to inactivity in the vaults of 
the Bank at the very seasons when they are most 



needed. The effect of sucli an artificial curtailment 
of the resources of the Bank is obvious. It renders 
monetary crises more frequent and disastrous than 
formerly, or than they would be but for the Bank 
Act. By nuUifjdng nearly seven millions of gold, 
the Act produces, when the bullion in the Bank 
has fallen to nine millions, a panic as violent as used 
to occur when the gold was reduced to two millions. 
The Bank has to stop when it has still nearly seven 
millions of gold, just as if the gold had fallen to zero.* 
In this way every trifling ebb of specie is converted 
into a serious catastrophe. The Bank Act, in fact, 
makes us sail in shallower waters than before. Al- 
though our commerce has now become a veritable 
" Leviathan " — achieving prodigious results, and only 
the more exposed on that account to great embarrass- 

* The following is a return of the lowest amount of coin and 
bullion in the Bank of England, during critical seasons of our 
monetary affairs — from 1819 to the present time. As it was only 
in 1825, 1847, and 1857 that a regular crisis took place, it is the 
position of the Bank in these years that specially deserves attention. 




1825— Dec. 31, 
1837— Feb. 7, 
1839-Sept. 3, 


5 per 




) Weathered 
V the storm 
I unaided. 

1847— Oct. 23, 
1857— Nov. 11, 
1864— Sept. 14, 







) Bank Act 
( suspended. 

The rate of discount compared with the amount of gold, as will 
be seen, has been progressively increased. And thus, with thirteen 
millions of gold in the Bank, the mercantile classes suffer more 
hardships than fell to their lot under the Act of 1819, when the 
buUion had fallen to barely three millions. 


ments — the Bank Act strikes nearly seven fathoms of 
water from beneath her keel, so that the least ebb of 
the tide now brings the huge fabric aground. The 
nullifying of these seven millions of gold is complete ; 
yet what might they not effect if they remained 
available as formerly ! Such an amount of gold 
might actually form the basis for an entire currency.* 
And judging from the history of past crises, we believe 
that the issue of notes to one-haK of that amount, in 
timeous assistance to solvent but temporarily embar- 
rassed firms, would suffice to have averted the worst 
panic that has yet arisen.t 

* The stock of specie kept by the Bank of England under the Act 
of 1819, did not exceed on the average eight millions. And as 
shown by the published monthly statements, the amount of bul- 
lion in the Bank of France, during December and January last, 
averaged exactly £7,000,000. For several months at that time, the 
Bank of France, with equal liabilities to those of the Bank of 
England, had only half as much bullion ; yet its rate of discount 
was only 7 per cent (which was fully higher than the average 
rate on the Continent), and more confidence prevailed in the com- 
mercial world of France than in ours. If the Bank of England, 
under its present management, were so circumstanced (as it actually 
was in 1847 and '57), our country would be covered with bank- 
ruptcies from end to end, and tens of thousands of our working- 
classes would be thrown out of employment. Why is this ? 

+ The issue of 2J millions in the form of Exchequer bills, bearing 
interest at 5 per cent, sufficed to stop the panic of 1793. An issue 
of 2 millions of inconvertible notes stopped the panic of 1797. An 
old chest of £1 -notes stopped that of 1826, And the suspension of 
the Bank Act of itself sufficed to stop the panics of 1847 and of 
1857, — although, even in the latter and more severe of these crises, 
the additional issue of the Bank's notes only amounted to £928,000, 
and though the exorbitant rate of 10 per cent was exacted as the 
minimum upon the Bank's advances. 





Is it not a great mistake, then, to condemn such 
potent agents of good to virtual non-existence in the 
vaults of the Bank ? Like some of the 
shadowy things shown to us in the 
world of metaphysics, these seven millions of gold 
at once are, and are not They are a fixture in the 
Bank, which only one or two persons within that 
establishment, and not a soul beyond its pale, ever 
sees, and from which the public derive not the 
slightest advantage. If any one were to abscond 
with them, the public need not know anything of 
the loss, nor (so long as the Bank Act exists) would 
be a whit the worse for it. There is a tradition 
in the Bank that once upon a time the Directors 
received an anonymous letter informing them that 
the writer could enter the Bullion Office whenever he 
pleased, and that he would meet them there at any 
hour they should appoint. Incredulous, they gave 
him a rendezvous for midnight : and lo ! exactly as 
the hour struck, they heard a subterraneous noise, 
part of the stone floor was raised, and the anonymous 
correspondent stood before them. He had made his 
entrance by means of an old drain which ran below 
the Bank. Now, if, even at a time of severest crisis 
under the present Act, such a subterranean explorer 
were to carry six or seven millions' worth of the 
glittering ingots down into the drain with him, the 
country would never feel — nor, if the Directors held 


their tongue, even know — of the loss. In fact, the 
best thing tlie Directors can do with these seven mil- 
lions is to count them once for all, place them in a 
vault apart, and then close up the entrance with stone 
and lime. But perchance they have already done so. 

This arrangement, we repeat, is the grand error of 

the Act of 1844. That the arrangement is eminently 

absurd may be of little consequence : but it 

ITS DISAS- "^ ^ 

TRous is a matter of serious importance that it is 


the prolific parent of monetary crises and 
commercial crashes. We have shown that this is the 
case, — nor can it be otherwise. The nullification of 
seven millions of gold being complete, whenever the 
Bank's stock of specie is seen falling to this point, the 
consequences are the same as if there were no gold in 
the Bank at all. And in this way every little ebb of 
gold, which under a natural system would occasion no 
embarrassment, produces a monetary convulsion of 
the greatest magnitude. The nullification of these 
seven millions — this is the cause why monetary diffi- 
culties in this country are now more frequent and 
severe than ever. And imtil this arrangement be 
abolished, the country cannot hope to escape recurrent 

Nor is this the full extent of the evil. The effect 
of the arrangement weighs upon the community at 
all times. It not only, at recurrent periods, produces 
panics and convulsions, but it permanently and arti- 



ficially enhances the rate of discount — the loanable 
value of money — ^throughout the whole country. The 
Bank Directors now regard seven millions of their 
stock of specie as non-existent. When they have four- 
teen millions of gold, they act as if they had only 
seven. Seven millions form the zero -point in all 
their calculations: that is to say, one -half of the 
ordinary amount of bullion in the Bank is nullified, 
and a double price is charged for the other half. 
What would be thought if a similar arrangement 
were to be adopted in regard to our supplies of 
food ? Suppose seven million quarters of wheat (fully 
one-half of our yearly produce) were placed in a huge 
granary in Cornhill, and that an Act of Parliament 
forbade the sale or giving away of any portion of that 
large stock of wheat, unless in exchange for another 
kind of food of equal value. The consequence would 
be that the slightest deficiency in the amount of our 
ordinary supply of food would subject the country to 
the horrors of famine. Wheat to the amount of one- 
half of our ordinary crop would be stored in Cornhill, 
but even when famine prevailed not a bushel of that 
corn would be available for the use of the community. 
The price of wheat, of course, would thereby be greatly 
enhanced. The marketable supply would be reduced 
one-half, and famine-prices would become the ordinary 
rate of charge. How long would such an arrange- 
ment be permitted to last ? Not one day. The whole 


country would be in arms to resist such, monstrous 
folly and injustice. Yet a system wMcli would not 
be tolerated for an hour if applied to our supplies of 
Food, actually exists by Act of Parliament in regard 
to our supply of Money. And — if it be worth while 
to mark degrees in so monstrous a policy — with even 
less excuse than if the system were applied to wheat : 
for we can easily increase the supply of bank-notes 
(which is all that people want during our monetary 
crises), but we cannot in like manner augment our 
supply of com. 

Eeason stands abashed when contemplating so 
absurd, and so frightfully injurious, an arrangement. 
The embargo upon these seven millions is not only 
an error, but an injustice. It is not only a de- 
fective currency arrangement, but a wrong to the 
community. It is an act of oppression committed 
upon trade by Act of Parliament. Not designedly, 
of course, but by mistake. It is the worst form of 
" Protection " that ever existed in our Statute-book. 
It is the chain which binds the Prometheus of trade, 
in order that the vultures of the moneyed interest 
may feed upon his vitals. We are told that un- 
happily for himself the liver of Prometheus ever grew 
as it was devoured, so that his torture was eternal ; 
and in much the same way. Trade recovers itself and 
grows fat again, only to be subjected to fresh ex- 
tortions. We pity the ignorant idolaters of India, 



when, of their free will, they throw themselves beneath 
the ponderous wheels of the car of Juggernaut. But 
here we have created an engine of destruction which 
periodically crushes Trade, and wrings the life's blood 
out of our commercial classes, whether they approve 
of the process or not. The high-priests of the idol, 
indeed, vaunt the system, and when firms go down 
in scores, and industry is robbed of its legitimate pro- 
fits, regard these results with infinite complacency, 
if not with glee, as a "clearing of the commercial 
atmosphere." But the system cannot last much 
longer. The dilemma, so artificial in its cause, so 
disastrous in its effects, has been wholly occasioned 
by legislation ; and legislation can — and we trust 
soon will — remove it. 

As a journalist, and in the pages of Blackwood's 
Magazine, we have frequently, and in ample detail, 
APOLOGIES exposed this extraordinary feature of our 
FOB IT. monetary legislation ; and although we hear 
few voices publicly endorsing our opinions, we believe 
that these opinions are gaining ground. Even sup- 
porters of the Bank Act begin to hesitate in their 
approval of this its leading provision. The Economist, 
the ablest of our authorities on monetary afi'airs, the 
most sensible and practical in its views and judgments, 
seeks to palliate rather than to uphold this perni- 
cious arrangement. It acknowledges that the theory 
upon which the framers of the Bank Act proceeded 



was quite erroneous ; and also that the embargo laid 
upon these six or seven millions of gold in the Issue 
department is not needed to maintain the converti- 
bility of the note. But, it says, although the object 
for which this embargo was imposed was a mistaken 
one, yet the result happens to be good ; because this 
reserved stock of gold is useful as a general banking- 
reserve, — as a depot of specie for the use of all the 
banks in the country. 

Now, if the Bank of England is to be compelled to 
keep on hand a stock of gold for the sake of all the 
other banking establishments, it is well that this fact 
should be fully known and plainly stated. Sir Robert 
Peel neither contemplated such an arrangement nor 
desired it. During the debates in 1844, he repeatedly 
stated that his bill was simply a currency-measure, — 
that it was not meant to apply to banking business at 
all, — and that it would be a great error, and an unjus- 
tifiable act, if the Government were to interfere in any 
way with the arrangements of banking. The soundness 
of this opinion, we think, will hardly be questioned. 

But, whether this opinion be approved or not, the 
fact remains — that these millions locked up in the 
Issue department of the Bank of England are not a 
general banking reserve at alL They were consigned 
to the Issue department expressly in order that they 
might not be employed for banking purposes; and the 
provision of the Bank Act on this point is so ex- 



plicit that, as long as the Act remains in force, these 
millions cannot be so employed. They are of no use 
whatever to the banking establishments of the country. 
They cannot even be used by the Bank itself Not 
theoretically, indeed, yet as a matter of fact, the Act 
condemns them to absolute inactivity. It virtually 
nullifies them. They are utterly useless as a bank- 
ing reserve of any kind. And this is precisely what 
the Act means them to be. 

It is true, this arrangement is so unworkable, and 
so disastrous in its effects, that whenever the time 
comes for its actual enforcement, the Act must be 
suspended. The arrangement is acknowledged to 
be a failure in the very circumstances which it was 
designed to meet. No community will stand being 
strangled for the sake of a crotchet, — for the sake of 
an erroneous and impracticable theory, even though 
that theory has been approved by Parliament ; and 
the Government has always to intervene, and sus- 
pend the Act, to prevent matters coming to a total 
dead-lock. Every one now knows, as he sees the 
Bank's reserve running down to seven millions, that 
next day the Act wiU be suspended. The Act re- 
maiQS in the Statute-book simply on the condition 
that it shall be suspended during the very seasons 
when this, its leading provision, should come into 
direct operation. Why, then, not abolish this pro- 
vision altogether ? 


The Economist is now so shaken in its allegiance to 

the Bank Act that it proposes that a bill should be 

passed authorising the Government of 


SUSPENSION, the day to suspend the Act at pleasure.* 


At present, any Government which sus- 
pends the Act must summon Parliament immediate- 
ly, in order to obtain from the Legislature a bill of 
indemnity for this arbitrary violation of the laws ; 
and the object of the Economist, in proposing to 
give to the Government a permissive power to sus- 
pend the Act, is to diminish the heavy responsi- 
bility which at present attaches to the Government 
in violating the law, — so that the Act may be sus- 
pended more frequently, and at an earlier period of 
our seasons of crisis. The proposal is inspired by 
an excellent motive, — but it is objectionable on 
constitutional grounds, and the working of the pro- 
posed system would not be long tolerated by the 
community. No Ministry, we feel confident, would 
consent to have such arbitrary powers conferred 
upon it. Great practical injustice, immense indi- 
vidual hardships, are occasioned by the manner in 
which these suspensions of the Act are, and must 
be, made. For example, why should discount-houses 

* *' There ought to be, wUTiin the law, a power of doing, when 
necessary, precisely what was done without and beyond the law in 
1847 and 1857. The Chancellor of the Exchequer and the First 
Lord of the Treasury shovdd have the legal power of suspending 
the Act of 184:7."— Economist, Oct. 1, 1864. 


and mercantile firms be compelled to fail, at half- 
past two o'clock on the 12th of November 1857, 
when other firms in like circumstances at three 
o'clock are freely assisted, and go on as before? Wliy 
should dozens of highly - respectable and solvent 
firms be sacrificed — losing their good name, which is 
everything to a merchant, and having to lose also a 
heavy percentage of their capital in the shape of bank- 
ruptcy expenses, — merely because the Chancellor of 
the Exchequer did not suspend the Act of 1844 an 
hour or two sooner ? It is not right that any man — 
be he who he may — should be allowed to exercise 
such a power. Although the Act were harmless in 
other respects, it were better that it should be blotted 
from the Statute-book than that any Minister should 
have such powers. And no English Minister, we feel 
assured, would desire to have so invidious a task 
imposed upon him. 

Temporary suspensions of the Act, moreover, would 
leave uncured the greater part of the evils which this, 
its leading provision, inflicts upon the community. 
Artificial monetary difficulties would be created just 
as at present. The only difference would be, that 
they would not be permitted to attain the same mag- 
nitude. The golden cord around the neck of Trade 
would be relaxed before the strangling process was^ 
carried to the length it now is. That is all. 

Besides, such temporary suspensions of this pro- 


vision of the Act would leave wholly untouched a 
serious evil of the present arrangement. 


OP THE The nullification of so large a portion 

of the Bank's stock of specie, as we have 
pointed out, not only creates monetary difficulties 
which would not otherwise occur, but it artificially 
raises the rate of usage throughout the country. 

We see the effects of this in the immense rise 
which has of late years taken place in the loan- 
able value of money. The Bank now raises its rate 
of discount to 8 per cent in circumstances where 
formerly it charged 4 per cent. In other words, in 
similar circumstances, the Bank charges twice as 
much for its money as it used to do. This change, 
so little noticed, but so important to the commercial 
classes, has been introduced during the last half- 
dozen years. Previous to 1857, when the amount of 
bullion in the Bank was between thirteen and four- 
teen millions, the rate of discount usually stood at 4 
or 4J per cent ; but now, when the bullion stands 
at a similar amount, the rate is raised to 8 or 9 
per cent. In December last, when the Bank's rate 
was 8 per cent, its stock of bullion ranged from 
£13,048,000 to £13,673,000. At present (Nov. 8), the 
Bank-rate for fhe last two months has stood at 9 per 
.cent, while the amount of coin and bullion in the 
Bank has ranged from £12,905,511 up to £13,313,441. 
An artificial crisis is thus produced — markets are 



depressed, mills are stopped, and failures multiply- 
while the Bank has fully thirteen milKons of gold in 
its possession. At the same time the Bank exacts, 
and the community pays, double the rates that used 
to prevail, or which, but for the Act, could prevail. 
This is a highly profitable process for the Bank. 

But there is another object, besides gain, which 
induces the Directors to act thus. Stung by their re- 
peated failures to observe the Act, in 1847 and 1857 
— a result which was due to no fault on their part, 
but simply to the unworkable character of the measure 
— ^the Directors are now resolved to " save themselves" 
from another break-down, at whatever sacrifice to the 
commercial community. Hence they charge high rates 
even under ordinary circumstances; as a platform 
from which they can advance in extraordinary times 
to still higher rates. Whenever a crisis like that of 
1857 recurs, we may expect to see the Directors 
raise the Bank-rate to 20 per cent where, in the 
former crisis, they charged 10. Perhaps they will 
ostensibly continue to discount all good bills, but 
their exorbitant charge will practically amount to a 
contraction of discounts. Fettered by the Act, and 
intent only on saving themselves, they will raise the 
rate remorselessly, leaving the commercial classes to 
pay a Shylock rate of usury or go into the Gazette. 

To sum up. The characteristic features of our pre- 
sent monetary system, so far as they relate to the 


Bank of England, are — (1) the withdrawal of nearly 
seven millions of gold from the use of the 


LATioN. Banking department of that establishment ; 
and (2) the high rates of discount which are a conse- 
quence, chiefly of this arrangement, and partly of the 
new system of action adopted by the Bank Court. We 
have shown alike the needlessness of these arrange- 
ments, and their evil eflfects. We have shown that this 
nullification of seven millions originated in a mistake 
on the part of the framers of the Act of 1844 : that 
this legislative embargo is not needed to preserve the 
convertibnity of the note-issues, — seeing that during 
our worst crises there never is any serious demand 
for gold m exchange for notes, and that the notes of 
the Bank maintaiaed their credit as fully in 1826 
when there was only a million of bullion in the Bank, 
as in 1857 when there was upwards of seven millions. 
During our monetary panics, in fact, it is notes only 
that are wanted by the public ; and whenever the 
required supply of notes is obtained, the panic is at an 
end. We have also shown that, as long as the Act of 
1844 remains in force, this large stock of gold is quite 

useless as a banking reserve of any kind. So much 

for the needlessness of the embargo. As regards its 
practical effects, we have demonstrated, we hope with 
sufficient clearness, that this arrangement, by which 
one-half of the Bank's average stock of gold is vir- 
tually nullified, occasions severe monetary pressure 



and commercial disasters at seasons when, but for it, 
the money-market would be buoyant and trade pros- 
perous. And also, that the ordinary and permanent 
effect of the embargo placed upon this large stock of 
gold, is to enhance artificially the value of money, 
by doubling the rate of usage throughout the country. 

This mistaken arrangement is the only ground 
upon which the Bank justifies the exorbitant rates 
which it now charges ; and if this arrangement were 
at an end, the Bank-rate might fall to its natural 
level. But there is more than this to be said : — 

Even as the matter stands, the Bank's practice of 
charging the very high rates which it now does when- 
ever there occurs a greater demand for dis- 


CREATE counts than usual, is open to serious criticism. 
Professedly* the present minimum rate of 
9 per cent is charged in order to prevent any serious 
diminution of the Bank's reserve of notes ; but in many 
cases such a high rate produces the very opposite result. 
Our merchants, while paying this extreme rate for the 
monetary advances by which nearly all our trade is 

* "The rate of discount is charged for one purpose only — the 
purpose of keeping the Reserve fund at a proper and safe limit." 
— Speech of Mr Hodgson, M.P., Governor of the Bank, at the 
recent quarterly meeting of the proprietors of the Bank on the 
22d of September. What the Bank Court regards as "a proper 
and safe limit " for the Eeserve was not stated; but as the Court 
now charges 9 per cent as their minimum rate when they have 
thirteen and a quarter millions of gold, it is difficult to imagine 
what their idea of safety and propriety is. 



carried on, have at the same time to encounter a loss 
on their sales, owing to the fall of prices which these 
high rates occasion. It is admitted on all hands 
that these high rates are "undesirable in themselves 
— ^that they are most injurious to the welfare of 
the country, — that, by abnormally depressing the 
markets and the value of property of all kinds, 
they cause heavy losses, especially to the mercantile 
classes, and that the employment of the people is 
correspondingly reduced. But, while thus injurious 
in their action, do they really accomplish the object 
for which they are had recourse to by the Bank? 
The numerous failures which occur whenever the 
Bank-rate is raised to 9 per cent — and stiQ more when 
it is raised to 10 — by spreading distrust, temporarily 
destroy our system of credit, and, by rendering a 
greater supply of notes necessary, tend to increase 
the inroad upon the Bank's reserve. Although these 
high rates crush Trade in the end, their immediate 
effect is to augment the demand which professedly 
they are meant to check. By imposing these high 
rates, the Bank temporarily creates a greater demand 
for its money ; and, though it may thereby aggra- 
vate the crisis, the Bank at least gets higher rates for 
its advances. The Bank not only gets extraordinary- 
profits by charging these high rates, but these rates 
become in turn a means of contiuuing themselves, 
by creating an artificial crisis. 


As a cure for a monetary panic, these higli rates 
are not only worthless, but act as a positive aggra- 
AND CANNOT vatiou of thc difficulty. In fact they are 
CURE THEM. ^ chicf causc of such panics. They cause 
more failures, more distrust, and a greater inroad 
upon the Bank's reserve, than there would otherwise 
be. Every season of monetary pressure is a harvest- 
time to the banks and great money-dealers ; and these 
high rates (whether meant to be so or not) are a 
means by which every crisis is aggravated, and the 
gains of the banks and money-dealers proportionately 
increased. We have shown abundantly, by reference 
to historical facts, that the special feature of mone- 
tary crises is a temporary paralysis of our ordinary 
credit-system — produced, it may be, by the action of 
the Bank itself — which necessitates a larger supply 
of bank-notes to take the place of less valid forms of 
credit ; and that the true and only remedy for them is 
for the Bank to give this supply freely, by increasing 
its usual amount of monetary accommodation. It is 
not a want of good securities on the part of the public 
at such times that causes this dilemma, but an artifi- 
cially-produced want of notes on the part of the Bank. 
An increase of discounts has stopped in succession 
every crisis which has occurred, from 1793 down to 
1857 ; and no crisis can be stopped in any other way. 
In the great crisis of 1826, as in those of 1793 and 
1797, as long as the Bank went on contracting its 



discounts, the crisis continued to increase, and the 
Bank's reserves continued to diminish; but the in- 
stant the Bank reversed its course and discounted 
freely, even " forcing out its notes in all directions " 
(though there was only a million of specie left in the 
establishment), the panic was at an end, and its gold 
began to increase. All monetary crises show the same 
features and are cured by the same means. Moreover, 
in 1826, as in 1793 and 1797, all this was accom- 
plished without any raising of the Bank-rate. The 
panic was stopped as effectually in 1826, when there 
was only a million of specie in the Bank, and the rate 
of discount was only 5 per cent, as in 1857, when there 
were upwards of seven millions of gold in the Bank, 
and the rate of discount was 10 per cent. In truth, 
as we have said, high rates aggravate, and some- 
times of themselves create, a crisis. That crisis is the 
death-struggle of Trade, during which it yields up its 
gains to the moneyed interest ; and thereafter comes a 
collapse. By augmenting the losses of traders, through 
depression of the markets, &c., these high rates pros- 
trate trade and diminish the employment of the work- 
ing-classes to an extent and for a duration of time 
much greater than used to be when such rates were 
not imposed by the Bank. Every season during which 
the Bank-rate is unusually high, is followed by a period 
of mercantile depression. Merchants and manufac- 
turers, crippled by their losses, and unable to pay the 




high charges exacted by the Bank, contract their ordi- 
nary amount of business, and discharge a portion of 
their hands. With diminished trade, there are fewer 
bills ; and then, for lack of business, the Bank has to 
lower its rate. But if the Bank did not kill trade by 
raising its rate so high, it would not, from want of 
business, have afterwards to reduce its rate so low. i 

Such is the practical operation of exceptionally 
high rates of discount. And it is by its practical ] 
effects that any system is to be judged. But having 
shown the facts, let us consider the matter from 
another point of view. ^| 

As the peculiar feature of the New System adopted 
by the Bank is to operate upon the money-market by 
THE RATE OP i^Gaus of variatious in the rate of discount, 
INTEREST. j|. ig ^qH ^q consider what are the normal 

causes which regulate the Eate of Interest. Looking 
at the facts of the case, the first thing that strikes 
one is the wide difference which exists between the 
present practice and that which formerly prevailed. 
In the twenty years which have elapsed since the 
passing of the Act of 1844, there have been 104 
changes in the Bank-rate ; while there were not 
more than a dozen in the hundred and forty years 
which elapsed between 1695 (the year after the 
Bank was established) and 1836.* Moreover, during 

* See Appendix B, where the variations in the Bank's charge 
for discounting commercial bills are shown from 1795 down to the 


the last twenty years the minimum rate has varied 
from 2 per cent up to 10; and as still higher rates 
have been occasionally charged, we may state the 
range of the variations in the Bank-rate since 1844 
to have been from 2 per cent up to 12. On the other 
hand, with the exception of a few months in 1839 
(when the new system was coming into vogue), the 
Bank-rate never varied more than one per cent (from 
5 to 4) during the century and a half previous to 1844. 
For upwards of a century and a quarter, it was 
the invariable rule of the Bank of England to dis- 
THE OLD count all commercial bills at 4 or 5 per cent. 
SYSTEM. ^Q ^g q£ ^Jjq present day, who are accustomed 
to see the Bank-rate changed on the average every 
two months, sometimes every two weeks, and to range 
from 2 to 10 or 12 per cent, such a course of procedure 
appears strange. All the more so that, during the 
period when the Bank-rate was thus steady, our 
country and all its interests underwent changes and 
convulsions greater than any of which we have had 
experience, or than the country is likely again to un- 
dergo within a similar period of time. That century 
and a quarter witnessed the great war with France 
under Louis XIV., — the dynastic troubles of 1715, 
— ^the formidable rebellion of 1745, which imperilled 
the existence of the Hanoverian dynasty, — the disas- 

present time : along with tlie amount of bullion held by the Bank at 
the dates when those variations took place, from 1822 downwards. 



trous war with our revolted American colonies, and 
with the allied powers of France and Spain, — and 
finally, the gigantic contest with France under the j| 
first Napoleon, when every Power in Europe, except 
England, was in turn beaten to the ground. There 
must have been some solid foundation for a practice 
which maintained itself steadily throughout so long 
and so trying a period. And if systems are to be 1| 
judged by their fruits, we cannot boast that our 
new monetary system has worked with more advan- 
tage to the community than the old one. We have 
had no great wars, no rebellions or dynastic convul- 
sions, yet the country has been more repeatedly in 
monetary difficulties since 1820 than it was during 
the whole century that closed with 1797. As re- 
gards the convertibility of the note, it was maintained 
with most perfect success during the whole of last 
century up to 1797, — under much greater difficulties 
than can now occur, seeing that the credit of the Bank 
was then not so fully established. And as regards 
the suspension of specie-payments in 1797, that was 
not a consequence of the Bank's rate of discount, 
but of the exports of specie which our Government 
had to make in the form of loans, and in a lesser 
degree for the support of our troops abroad.* 

* On carefully considering tlie facts which led to the suspension 
of cash-payraents in 1797, we see much reason to think that the 
suspension might have been wholly avoided, hut for the panic 




The questions naturally occur: — Why was the 
average rate of discount fixed at 4J per cent ? and 
ITS PRiN- why was the rate confined in its variations 
^^^^^- to one per cent? It was not the Usury 
Law which led the Bank to select four or five per 
cent as the fair rate of usage; for the 5 per cent 
Usury Law was not passed till 1712; and moreover, 
upon Government stock and good securities, the Bank 
used only to charge three or four per cent. What, 
then, is the explanation of the old rule? The principle 
upon which it was based is at least a very intelli- 
gible one. The Bank said, — " The average profit on 
money invested, at no small risk, in trade is 10 per 
cent, — hence 4 or 5 per cent is a fair profit upon 
money safely invested upon good securities. To 
charge more than that rate would check trade, — ^to 
charge less would needlessly diminish our profits : 
therefore we shall adhere to the fair rate." The 
rate of discount being thus fixed, the amount of the 
currency and of discounts was left to be regulated by 
the country itself — by the requirements of the com- 
munity. "If we were greatly to lower the rate at 

occasioned by the refusal of the Bank to continue its discount- 
operations at the ordinary amount. For five weeks before the 
climax came, the Bank had been steadily diminishing its discounts 
(to the extent of £2,000,000 — a serious amount in those days), 
while the private banks had to follow its example. A panic was 
the inevitable result : and the Bank had to shut its doors. But 
for that panic, we believe, the suspension of cash-payments might 
have been avoided. 



one time and raise it at another," said the Bank Court7 
" we should virtually prescribe to the community the 
amount of trade which is to be carried on, — alternately 
expanding and contracting it. We should interfere 
with the natural action of trade, and at the same 
time we should endanger its legitimate profits. Our 
function is simply to provide the instrument of 
exchange, by which loans are made and capital trans- 
ferred, at a fair rate (determined by the average rate 
of profits), and thereafter leave Trade to act free and 
untrammelled — to expand or contract according to 
its circumstances and opportunities." In short, they 
regarded the instrument of exchange as the hand- 
maid of commerce ; as a thing devised for the purpose 
of transferring capital and facilitating trade: and 
they regarded it as their function, as the national 
Bank of Issue, to maintain a supply of this com- 
modity adequate to the fluctuating requirements of 
the community. 

Eecognising the disadvantages inflicted upon legiti- 
mate trade by frequent variations in the rate of dis- 
count, and seeing that 4J per cent, as a rule, was the 
right rate to be charged, the Bank Court of those days 
preferred to adhere to that rate as closely as possible, 
rather than create embarrassments for trade, and for 
the community at large, by making the rate fluctuate. 
In this manner the Bank of England, for nearly a 
century and a half, adhered to the rule, and disre- 


garded the exceptions. In recent times this policy 
has been reversed ; and now we exalt the exceptions 
at the expense of the rule. Steadiness in the rate 
is obviously of great advantage to the community; 
and although the old rule need not be maintained, 
the principle upon which that rule was based ought 
not to be lost sight of. It ought never to be forgotten 
that all great changes in the rate of discount are 
inimical to legitimate trade. They introduce into 
trade the spirit of gambling. By a great fall in the 
rate of discount, a man may gain immensely by no 
merit on his part, and purely as a gambler wins in 
games of chance. And by a great rise in the Bank- 
rate, he may be made bankrupt equally by no fault 
of his. Fluctuations beyond the normal point, whe- 
ther upwards or downwards, are per se undesirable. 
Variations in the rate of discount ought to be mini- 
mised, not exaggerated. The profit upon money em- 
ployed in trade does not fluctuate in this manner : 
from year to year it remains pretty nearly the same : 
and as the value of money on loan naturally bears a 
relation to the amount of profit arising from the use 
of it, we are as much opposed to unnecessary re- 
ductions of the rate, as to avoidable elevations of it. 
Under our present monetary system, however, the 
natural relations between Capital ready to be loaned, 
and Industry willing to employ it, have been seriously 




The fundamental elements which regulate the rate 
of interest are: the amount of loanable capital, and 
CAUSE OF t^® demand for it — which demand is regu- 
THE CHANGE, ^atcd \)j tho profit which can be obtained 
from the employment of that capital in business. A 
third and subordinate element is, the instrument of 
exchange. In our present monetary system, this 
third element is made supreme. As we have shown, 
the changes in the rate of discount have no connec- 
tion with the amount of capital in the country.* 
They are entirely occasioned by fluctuations in the 
available amount of currency. They are not caused 
by variations in the amount of capital deposited in 
the banks, but in the amount of currency which 
there is to represent and employ that capital. 

In former times — during the century and a half 
which preceded 1844 — little or no embarrassment 
THE NEW arose from this cause. The currency in those 
SYSTEM. times varied, by expansion or contraction, 
according to the varying requirements of the com- 
munity. It was a self-acting system — regulated not 
by the banks, but by the community. It was only 
the wants of the community which took off an in- 
crease of notes from the banks, and when the want 
subsided, the note-circulation fell to its former amount. 
Now, it is equally a self-acting system — regulated 
not by the requirements of the country, but by the 
* See svpra, pp. 219-227. 


fortuitous scarcity or abundance of gold in the 
Bank of England. Under the former system, the 
value of money remained comparatively, and might 
have remained absolutely, steady; under the new- 
system, it is subjected to ceaseless and excessive 
variations. Under the former system, prices were 
regulated by the scarcity or abundance of the articles 
to which they referred ; under the new system, prices 
vary quite irrespective of that scarcity or abundance, 
and simply owing to changes in the value of money. 
Our measure of value — the standard by which all 
other things are measured — is now subjected to 
greater variations than any other commodity in the 
country. A merchant who gives his promise to pay 
£1000 three months after date, may find that, owing 
to a change in the value of money, he has to pay 
£1250; and it is quite a common case if he has to 
pay £1100 instead of £1000. For example, a mer- 
chant purchases a thousand pounds' worth of goods, 
and gives a bill at three months' date. In the inter- 
val, the Bank-rate is raised to 9 or 10 per cent ; the 
markets are depressed to the extent of 20 or 25 per 
cent ; so that, in order to get money to meet his bill, 
he must sell not only the thousand pounds' worth of 
goods which he received, but a fifth or a fourth part 
more, before he can realise the £1000 which he has 
to pay. This is not an imaginary illustration. Hun- 
dreds of our merchants had to do this in 1857 ; and a 



similar loss, to a lesser degree, is befalling them now. 
Thus the value of money is made to change enor- 
mously in this country within a few weeks. 

The theory of " variation " which now regulates our 
monetary system, and produces these extraordinary 
results, is briefly this : — If much gold happens to be 
brought into the country, the note-circulation is like- 
wise to be increased to a corresponding extent ; if gold 
is temporarily withdrawn from us, the note-circulation 
also is proportionately diminished. If, owing to a 
temporary cause, all the gold available for monetary 
purposes were sent abroad, all our paper-money would 
likewise disappear, and the country be left without 
currency of any kind. A more absurd theory never 
was propounded. If one kind of money fails us, we 
are upon no account to use any other. If metallic 
money fails us, we are not to use our paper-money. 
Nay, even as regards specie, we are restricted: for 
if gold fails us, we are not to use silver. This we are 
told to regard as a masterpiece of economical science; 
this is the great discovery which our advances in 
civilisation have revealed to us. Formerly, for gene- 
rations, when the supply of specie became inadequate 
for their wants, our people had recourse to bank-notes 
to supplement the deficiency. Every other civilised 
nation has done the same. Every country in Europe 
or America has adopted bank-notes as an indispen- 
sable supplement to its stock of the precious metals. 



Even Hamburg, where metallic money was the sole 
form of currency, had recourse to paper-money to meet 
the exceptional requirements of its citizens in 1857 * 
But a new light has at length dawned upon us. 
The gospel of monetary science now is: that when 
a country does not want paper-money, it ought to 
have a great supply of it, — and when it does require 
paper-money, it shall have none. When a country 
has enough of specie, it ought to double its currency 
by issuing an equal amount of bank-notes ; and when 
there is no specie, there should likewise be no notes. 
Is it necessary to discuss such a theory ? In order to 
be refuted, it only requires to be stated ; in order to 
be rejected, it only needs to be understood. It is a 
theoretical monstrosity which common sense revolts 
against, — a burlesque of reason which even the pre- 
sent generation will live to laugh at. 

The ebbs of gold which occasionally take place in 
our country as in others, are purely temporary. The 
gold returns to us, as it left us, in the ordinary course 
of trade. It does not leave us owing to any deprecia- 
tion of the currency, and it will come back again with- 
out our taking measures artificially to enhance the 
value of money, t Under the present system, these 
transient ebbs of gold, instead of being neutralised, 

* For a brief account of the remarkable monetary crisis in Ham- 
burg in 1857, see Appendix C. 
+ See supra, pp. 235-38. 




are so treated as to produce a serious derangement of our 
measure of value. Thus we violate the prime and sole 
object for which standard-measures are instituted. ^■1 
The first and indispensable requisite of standard- ■ 
measures of all kinds is, that they shall at all times be 
free from variation. The material of which 
these measures are made is of no conse- 
quence, apart from the maintenance of the uniformity 
of the measure. It matters little — it is simply a 
question of convenience — whether the pound-weight 
be made of iron, lead, or stone; but it is indispen- 
sable that the material employed be always of the 
same weight. It matters nothing of what material or 
in what shape a pint-measure be made — whether of 
metal, glass, or earthenware, whether round or square 
or many-sided, — so that its cubic area remains always 
the same. Whatever it be made of, we cannot allow 
of the pint being enlarged by bulging, or diminished 
by indentation. Or take the case of our measures 
of length. The yard represents a scientifically-deter- 
mined fraction of the earth's meridian — a certain 
portion of the arc which extends from pole to 
pole. But as the earth's surface happily is not 
marked off into yards for the convenience either of 
savans or shopmen, before this measure of length be 
applied to ordinary purposes it must be embodied and 
represented in a material form. And the indispensa- 
ble requisite of this material yard is, that it shall not 


be subject to variations in length. We must make 
our standard-yard of the substance which is least 
liable to contract and expand in length; and if we 
cannot free that substance from variations, we must 
neutralise them. In our measures of time, likewise — in 
our chronometers, — we do not merely mark off a certain 
length of pendulum fitted to the latitude of the place, 
but we take means to neutralise the expansions and 
contractions to which the material of the pendulum is 
liable. For this purpose we employ two different mate- 
rials, whose different action in expanding and contract- 
ing is made to neutralise the variations which would 
be unavoidable if only one material were used in 
constructing the measure. Look at the compensation- 
balance of a watch, and you will see that it is a com- 
bination of brass and steel, so constructed that the 
different contractile and expansive qualities of these 
metals are made to neutralise each other's effects, and 
maintain the balance in its standard form. The twin 
curves of brass and steel are so used that when the 
variation of the one tends to expand the balance, the 
variation of the other tends to contract it. And so 
the measure is kept true at all times. 

The same principle applies to all measures — 
whether of weight or of time, whether of length or 
of value. It is of small consequence if the yard- 
measure of a shopman expand a little with the heat 
of summer, and contract a little with the cold of 



winter. But enlarge the process, and the result will 
assume a very different aspect. Let a faulty yard- 
wand (one liable to expansion and contraction) be 
applied as a basis of measurement to the whole coun- 
try, and the evil will become of serious magnitude. 
Our distances would be all wrong, — the area of every 
field, the extent of every estate, would be falsified, — 
the heights of our mountains, the position of every rock 
and shoal on our coast, would be given erroneously. 
The extent of our islands would vary according as 
they were measured in summer or in winter ; the area 
of each county would vary according as it was meas- 
ured in a hot day or a cold one ; and the skill of our 
chartographers would be totally foiled in their at- 
tempts to piece together the incongruous parts. i 
Far greater, and infinitely more injurious to the 
community, are the variations which at present take 
OUR MEASURE place in our measure of value. That 
OF VALUE. measure is constantly expanding and 
contracting, in a manner that baffles all calculation. 
It varies sometimes even to the extent of a third 
or a fourth — to the extent of 20, 25, or even 30 per 
cent. This is as if the yard-measure, owing to con- 
tractions and expansions of the material of which it 
is made, were sometimes three feet in length, and 
sometimes four. A merchant who buys a thousand 
tons of coal, and gives a bill for £1000 at three 
months' date, sometimes finds that, owing to a change 


in the value of our currency, he must sell twelve 
hundred tons of the same coal before he can get the 
£1000 to meet his biU. 

This, we repeat, is a violation of the prime and sole 
object for which measures of any kind — whether of 
weight, length, or value — are adapted. And there is 
no way of maintaining the accuracy of any standard- 
measure save by combining in it two different mate- 
rials, the variations of which are made to neutralise 
each other. The principle of the compensation-balance 
is as indispensable in the measure of value as it is 
in other measures. We must combine with metallic 
money another form of currency by which its variations 
can be neutralised. A metallic currency is ceaselessly 
contracting and expanding ; therefore another kind 
of money should be used along with it which can be 
made to expand and contract in inverse order. In 
this way alone can the measure of value be main- 
tained, and the money-contracts of a country, the 
pecuniary engagements between man and man, be 
kept unaltered and inviolate. 

Bank-notes are the means by which this may be 
effected. Combined with metallic money, they are 
like the steel curve in the compensation - balance 
which, applied to the larger brass one, keeps the 
measure unchanging. We cannot stop metallic con- 
traction or expansion, but we can neutralise it. This 
is what science does in the measures of time and 



other standards which it employs : and this is what 
civilisation does in regard to the currency. Go where 
you will, in every civilised country you find paper- 
money. It is an infallible sign of advanced civilisa- 
tion ; and just in proportion as civilisation increases, 
paper-money is more extensively employed. And in 
every country it is used for the same purpose — namely, 
to supplement the use of metallic money, and to neu- 
tralise its occasional ebbs. In truth, for a country like 
ours to make its measure of value fluctuate with the 
ebb and flow of gold, is as absurd as if our yard-meas- 
ure were to vary with the depth of the Thames at 
London Bridge * 

The value of money, like that of aU other com- 
modities, depends upon the amount of the supply, 
and the extent of the demand. If the amount of 
money in a country remains the same at a time when 
the monetary requirements of the community (owing 
to increase of population and trade, or any other 
cause) experience an increase, then the value of 
money wiU be altered, — all business will be deranged, 
and all contracts will be vitiated. In like manner, if 
the amount of money be diminished, while the re- 
quirements of the community continue as before, the 
same result will be produced. The value of the cur- 

* We shall not here interrupt our exposition by an abstract dis- 
cussion, but some remarks on "What is a Pound? " published by 
the author several years ago, will be found in Appendix D. 


rency will be raised, — in consequence, prices will be 
lowered. The same quantity of goods or land, houses 
or labour, will no longer obtain for its owner the same 
amount of money. The trading-classes, and all others 
(constituting the bulk of the community) who hold 
their wealth in the form of goods and property, will 
undergo a serious loss ; while the small class (forming 
not a ten-thousandth part of the population) who hold 
their wealth in the form of money, will reap immense 
gains. Every such change in the value of the cur- 
rency sweeps away the profits of the trading and in- 
dustrial classes into the pockets of the money-dealers. 
Nor is this loss confined to the trading-classes : the 
whole body of the working-classes suffer along with 
them. Owing to the losses inflicted upon their em- 
ployers, the lower classes are in part thrown out of 
emplo}Tnent, and in part get less money for their work. 
It is extraordinary to mark what a small variation 
in the amount of the currency suffices to produce the 
changes in our measure of value, and 


TioNs WHICH which equally would suffice to prevent 

VITIATE IT. „___., 

them. The currency of the United 
Kingdom amounts to fully a hundred and fifty 
millions:* yet the variations which occasion our 

* This is a conjectural estimate, but we do not think it can be 
above the mark. Twenty-five years ago (in 1839), our gold and 
silver coinage was probably upwards of fifty millions sterling. 
Since that time gold and silver coinage has been issued from the 
Mint to the amount of 120 millions. Assuming that fifty millions 




calamities seldom exceed five or six millions. This 
seems a strange fact. It happens in this way. By 
far the greater portion of onr currency (amounting 
to about 100 millions) is in constant use in carrying 
on the retail operations of daily life. It is fully occu- 
pied in effecting the exchanges between tradesmen 
and their customers, in the payment of wages, and 
the purchase of the necessaries and luxuries of life. 
It is constantly passing from hand to hand ; and 
accordingly all this portion of our money, being fully 
employed in its own work, is not available for any 
other purpose. It is only the portion of our money 
which is kept in the banks (about 40 millions) that 
is available for the discount operations by which 
trade is carried on. Or rather it is only a portion 
of this money that is so available, — only the sur- 
plus portion which remains after the banks have 
made provision for the usual requirements of their 
depositors. It is this portion of our currency alone 
which is available to meet variations in the mone- 
tary requirements of the community, — and also which 
is acted upon by any variation in the amount of the 

of metallic money (the amount existing in 1839) have been absorbed 
during the last twenty-five years in re-coinage, in Wear and loss 
from casualties, or have been exported instead of bullion, there will 
remain 120 millions of metallic money in this country. To this 
have to be added nearly forty millions of bank-notes, — making the 
total currency fidly 150 millions sterling. This estimate is exclu- 
sive of (say) ten millions of bullion, uncoined money, kept in the 
vaults of the Bank of England, 


monetary supply. To withdraw five millions from 
a currency of a hundred and fifty millions is in 
itself a trifle ; but when that diminution takes 
effect wholly upon this small portion of the cur- 
rency, the effect produced is very great. Thus the 
occasional variations with which we have to deal 
are quite insignificant compared with the amount of 
our currency : and yet, our present monetary system 
causes these small variations to entirely vitiate our 
measure of value, and inflict both losses and wrongs 
upon the community. Instead of neutralising these 
variations, we greatly magnify them. An alteration 
of 5 per cent in the quantity of the currency is 
made to alter its value to five or six times that 
extent. When, owing either to a diminution of the 
supply, or to a temporary increase in the require- 
ments of the community, the loanable portion of our 
currency is reduced to the extent of four or five millions 
below the ordinary amount, the value of money is 
raised some 20 or 25 per cent : although the currency 
itself is reduced only about a thirtieth or fortieth part, 
— or, it may be, not reduced at all. 

The smallness of the variations which so vitiate 
our measure of value, show how easily these variations 
may be remedied. When the diminution below the 
ordinary amount which produces our monetary and 
commercial embarrassments is only a thirtieth part 
of our currency, it requires no great effort of science, 



or triumph of civilisation, to keep the standard-mea- 
sure at its right length. In fact, it is legislation alone 
which makes the difficulty, by creating a dimunition 
of the currency which would not otherwise occur. 
Leave the community alone — leave to the public and 
the banks their natural freedom of action, and nearly 
the whole of the difficulty will at once disappear. 

The very fact that the deficiency of the circulating 
medium — the instrument of exchange by which pay- 
now TO CURE i^^nts are effected and loans made — 

THEM. occurs in the banks of a country, sim- 
plifies the matter. These establishments for the 
most part have a large capital of their own, and 
also large sums entrusted to them for the very 
purpose of being lent out; and if the community 
require and desire to take notes of these banks, 
it is an advantage to both parties that such notes 
should be issued. Not a single note can get into cir- 
culation unless the bank enjoys the confidence of the 
public, — for of what use would bank-notes be to any 
one if they were not accepted by others in payment ? 
Nor would a single note be taken unless it were actu- 
ally wanted, — for what trader would pay for discounts 
which he did not require ? The banks, on their part, 
would take good care that they got ample security for 
their advances, and charged a fair price for the use of 
their capital thus loaned in the form of notes. And 
as the supply neither would nor could exceed the 


requirements of tlie community, the only effect of such 
issues would be to preserve our measure of value from 
sinking below its true level. It would be the duty 
(as it has always been) of the banks to maintain the 
convertibility of the notes which they issue. And in 
truth, at the seasons of which we speak — namely 
when the currency is from any cause inadequate for 
the wants of the country — people have even less 
desire than usual to exchange bank-notes for gold. 
The notes serve their purpose ; and they want 
nothing else. There are at present upwards of two 
hundred banks of issue in the United Kingdom, and 
a mere fractional addition to the circulation of these 
banks would suffice to avert those variations in our 
measure of value which, under the present system, 
inflict such losses upon the community. 

Actual experience, the safest of teachers, has de- 
monstrated that the cause of all our crises is sim- 
ply the fact of the currency becoming temporarily 
insufficient in amount for the requirements of the 
community; and that the moment this insufficiency 
is remedied, the crisis is at an end. We have shown 
this abundantly by reference to historical facts; and 
the calamities of 1847 and 1857 exemplified the same 
truth within the experience of the present generation. 
In every crisis, the moment the Bank of England has 
reversed its policy of contracting its discounts and 
circulation, and, to use the words of the Governor of 



the Bank in 1826, "made common cause with th^ 
country," the difficulty has come to an end. It was 
the notes of the Bank that were wanted by the 
public, and as soon as these were supplied the crisis 
terminated. Convertibility on these occasions is not 
endangered by a temporary increase of issues; on 
the contrary, by terminating the unreasoning panic 
in which a great crisis culminates, the issue of the 
notes actually stops the internal drain for gold.* m 

* This fact was exemplified in a remarkable manner in the Ame- 
rican crisis of 1857, when the internal drain was owing to a con- 
traction of discounts and note-issues on the part of the banks. At 
the time of the crisis there was no external drain of gold, — on the 
contrary, specie was then flowing into the country. The drain of 
gold was internal only, and was chiefly, if not wholly, occasioned 
-hy the mistaken policy of the banks. The Times' correspondent 
(writing from New York on the 20th October) remarks on the 
strangeness of a suspension of specie payments occurring at a 
time " when the Exchanges throughout the world gave a profit 
on the transmission of specie to New York." "It was abso- 
lutely impossible (he says) on the day of suspension that the 
specie of New York could find its way out of the town, except 
by some extraordinary operation unknown to trade. The Euro- 
pean exchanges made remittances there impossible. The whole 
interior was largely indebted to New York. . . . But confidence 
was utterly gone here. . . . No man believed in anything or any- 
body this day week. ... In the beginning of the panic, the banks 
commenced a contraction, which in a single week reduced their 
loans 4,000,000 dollars, and increased their specie as much. . . . 
They might have known that if they showed a want of confidence 
in the community, by contracting when increased accommodation 
was demanded, the want of confidence would react upon them- 
selves, who were the depositaries of the floating wealth of the 
trading world. They, or rather enough of them to control the 
action of all, reasoned otherwise, and thought they could strengthen 
themselves at the expense of the merchants. . . . The banks con- 


Now, why should not the Bank act in this man- 
ner at first, instead of waiting till disaster has over- 
spread the country, and panic has endangered its own 
position? When gold leaves the country, the obvi- 
ous remedy is to supply the temporary vacuum with 
bank-notes. No " depreciation" of the currency arises 
from such a procedure. No notes will go out unless 

tinued to contract, until a very considerable portion of the mercan- 
tile community in despair agreed among themselves to withdraw 
their deposits in specie if relief was not afforded. The relief was 
denied, and the withdrawal began. There could of course be but one 
end to this. . . . The moment this game was begun, a suspension 
became inevitable." — Times, Nov. 2, 1857. 

The cause of the panic, as the Times in its City article justly 
remarked (Nov. 3), was that "The banks, in their eflforts to save 
themselves, had contracted their note-circulation far below the 
requirements of the country for its internal trade." And speaking 
of the result, the same journal observed: — "The entire suspension 
of specie payments by the New York and Boston banks is the most 
satisfactory announcement that coidd have been looked for. Had 
the step been taken a fortnight earlier, an immense amount of ruin 
might have been averted. The banks, after having by their mis- 
management brought about the state of affairs which rendered the 
panic possible, sought to save themselves by the sacrifice of the 
whole mercantile community ; but the public at last have taken the 
matter into their own hands, and forced them to a stoppage, which 
will place them in the same condition with their victims, and thus 
terminate the struggle. . . . Its effect was instantaneous. 
Every one, it is said, seemed to feel that the ordinary channels of 
business would forthwith be restored, and that from that moment 
the progress of recovery would commence. A postscript announces 
that everything was going on quietly, and that all excitement had 
passed away. This result was perfectly natural. The inconvertible 
paper of the banks would now circulate at a value in proportion to 
the discretion with which it might be issued; and supposing it to 
be kept within close limits, there is no reason that it should fall 
much, if at aU, below par." — Times' City Article, October 27, 1857. 



there be a demand for them ; and the extra demand 
amply maintains the value of the extra issue. And 
when the temporary demand ceases, the notes are 
returned to the banks in the ordinary course of busi- 
ness. Even in the extreme case of a suspension of 
cash-payments by the banks of a country, the paper- 
money will preserve its fidl value, on the simple con- 
dition that the supply does not exceed the wants of 
the community. This is a self-evident proposition. 
As the Times observed, on the occasion of the suspen- 
sion of cash-payments in America in 1857 : " Sup- 
posing the paper -issues of the banks, which are 
based upon the security of State Stocks, to be kept — 
as there is little doubt they will be — within limits 
not exceeding the requirements for carrying on the in- 
ternal trade of the country, this paper will be main- 
tained at par : that is to say, it would be taken for its 
equivalent in English sovereigns or American eagles."* 
And the correctness of this opinion was amply estab- 
lished by the result. Nay, more : for " the extraordi- 
nary fact was exhibited, of the inconvertible currency 
of the New York suspended banks being actually at a 
premium compared with the specie currencies of other 
countries. That is to say, a bill on London would be 
purchased in the notes of the New York suspended 
banks at a price which, after allowing for interest and 
all charges, would bring back [from London to New 
* Times' City Article, Oct. 29, 1857. 



York] in gold a larger sum tlian had been paid for 
it." * 

An extra issue of notes, when there is an extra de- 
mand for them, only suffices to preserve the measure of 
value unchanged. It simply prevents prices from being 
abnormally lowered, and serves to maintain the normal 
value of money, upon which all contracts are based, 
from being exceptionally altered. Nor does such an 
extension of discounts, to meet the requirements of the 
country, entail any difficulty or hardship upon the Bank 
of England. On the contrary, it is a source of profit 
to it. Every additional million's worth of bills dis- 
counted is so much additional profit to the Bank. In 
former times, when, owing to a temporary increase in 
the requirements of the country, the discount business 
of the Bank of England or of any other bank increased, 
it congratulated itself upon this extension of its busi- 
ness, and was well content to make the required ad- 
vances at the usual rate of 4 or 5 per cent, — the profit 
on these advances being in greater part a pure gain. 
And as a basis of any permanent extension of their note- 
circulation, the banks added to their stock of specie, or 
of securities readily convertible into specie. In this 
way the requirements of the community were fully met, 
with benefit to both parties, and without any enhance- 
ment of the normal value of money. But all this is 
at an end. The natural expansion of the currency, as 
* Ibid., Oct. 31, 1857. 


:HE bank of ENGLAND. 

regulated by the requirements of the community, isi 
now forbidden by legislative enactment. The great 
extension of banking, the increased use of cheques, 
and the enlargement of the "clearing-house" system, 
have happily sufficed to economise our currency, — so 
that the same amount now goes much further than it 
used to do. But in times of crisis, when an exceptional 
increase of the public requirements takes place, the 
effects of the new system are most disastrous. The ex- 
ceptional increase of monetary requirements is always 
very brief, — and, as we have said, it may be caused by 
the action of the Bank itself Yet, during the few 
weeks of its duration, the consequences to trade are so 
disastrous that the country is sometimes strewed with 
fallen firms. There is no longer any elasticity in our 
currency-system. It is no longer adequate to meet 
the occasional fluctuations in the demand for currency 
which are natural in every community. 'Not is this 
evil confined to transient augmentations of the public 
requirements. If ever, owing to increase of trade and 
population, 24 millions of the Bank's notes should 
be permanently required by the wants of the com- 
munity (instead of 21 as at present), 9 and 10 per cent 
would become the ordinary rate of discount — ^rising to 
15 and 20 per cent whenever any little embarrassment 
occurred. Such a state of things — so artificial and so 
oppressive to trade — could not be tolerated : yet such 
is the monetary regime under which we now live. 


At present the value of the currency, the rise and 
fall of prices, is regulated by the action of the Bank 
THE bank's of England. The Bank has a monopoly of 
MONOPOLY, power. No other bank or banks can com- 
pete with it. If nine-tenths of all the corn in the coun- 
try were in the hands of a single company, and if Par- 
liament forbade the establishment of any new com- 
pany, or any extension of business on the part of those 
already in existence, the whole community would pro- 
test against such an arrangement. Under such a sys- 
tem, the price of corn would not follow its natural 
course, but would be artificially influenced by the effects 
of the monopoly. There would be no competition, and 
accordingly we should have no means of knowing at 
any particular time what the natural price of grain 
really was. This is virtually the condition of the 
country under our present monetary system. If banks 
of issue had been left free, as they were in Scotland 
for the century and a half prior to 1844, the real 
value of money on loan would be at all times readily 
ascertained. For example, when, owing to an increase 
of trade or to any other cause, an increase of dis- 
counts was required by the community, if some banks 
were disposed to charge more than a fair rate, they 
would be kept in check by the others. The banks 
might fairly be trusted to look after their own inter- 
ests, by not charging a rate too low to be remunera- 
tive : while mutual competition would tend to prevent 



the exaction of rates imduly high. But no such 
check at present exists. The Bank of England has a 
virtual monopoly of the note-issues of the kingdom ; 
and it is the only bank which can extend its issues on 
a sudden, so as to meet any exceptional increase in 
the demand for discounts. Hence it has a virtual 
monopoly at all times ; and in exceptional times, as 
in a crisis, its monopoly is absolute. All the other 
banks of issue are such pigmies, compared to the Bank 
of England, that it is hopeless for them to enter into 
rivalry with it. Prior to 1844 the provincial banks 
of England used to extend their issues to meet the 
requirements of their locality, — doing so at 5 per cent 
with good profit to themselves. But they cannot so 
extend their issues now ; and they compensate them- 
selves for this contraction of business by readily fol- 
lowing the example of the Bank by exacting the same 
high rates. To talk of the value of money in the " open 
market" in this country is simply to mislead. Owing 
to the great expenses of the Bank's establishment, 
the discount-houses, and many of the other banks, 
can afford to discount bills at a fraction below the 
Bank-rate. If the Bank discounts at 2 per cent, they 
can discount at If. And whenever they see that 
the Bank's rate is likely to be lowered, they anti- 
cipate the fall. But so entirely dependent are they 
upon the Bank, that (except when there is an abnor- 
mal depression of trade) the Bank has only to raise its 



rate, and the whole banking and discount -houses 
raise theirs also. It is, of course, a source of profit 
for them to do so. They are not only dependent 
upon the Bank, but they have an interest in follow- 
ing it in every rise of the rate of discount. The note- 
circulation — the currency with which these banks and 
discount-houses carry on their business — is entirely 
under the control of the Bank of England. These 
banks and discount-houses have a vast amount of 
loanable capital deposited with them, but for the in- 
strument by which this capital can be lent out, they are 
wholly dependent upon the Bank of England. They 
are but satellites, and can do nothing but follow suit.* 

Before concluding this portion of our subject, we 
have one more remark to make : — 

The Bank does not adhere to the " variation " theory 
at times when a drain of gold takes place ; for it does 
not contract its note-circulation in proportion as its 

* However the ' ' market-rate " may occasionally vary from the 
Bank-rate, it is essentially dependent upon it. If the other banks 
and discount-houses see that the Bank's reserve is increasing, so 
that a fall in the Bank-rate is likely to take place soon, they antici- 
pate this fall by at once reducing their own charges. But no such 
reduction of the "market-rate" takes place save as a simple fore- 
stalment of the expected fall of the Bank-rate. The truth of this is 
easily demonstrated. As we have shown, the Bank now charges 8 
per cent under circumstances when formerly it charged only 4 per 
cent : and the essential dependence of the market-rate upon the 
Bank-rate is amply shown by the fact that the market-rate has 
risen in exact imitation of this arbitrary change in the practice of 
the Bank of England. The market-rate, we repeat, never sinks 
more than a fraction below the Bank-rate, unless as a simple fore- 
stalment of an expected fall in the Bank-rate. 



stock of bullion decreases. The Bank's system, as 
we have stated, is to meet a drain of gold by greatly 
raising its rate of discount. Now, as a question 
between the Bank and the community, there is a vast 
difference between these two methods of procedure. 
If the Bank contracted its issues — as Sir E. Peel 
wished it to do, and also as the " variation " 
theory requires, — it would sell its Govern- 

WHAT SIR '' ^ 

R. PEEL ment securities in proportion as gold was 
withdrawn, and cancel the notes which it 
received in payment. This was the course which 
Sir E. Peel desired and expected it to take : and 
he anticipated that in some cases the Bank would, 
for this purpose, have to sell off the whole three 
millions of Government stock upon which it is 
allowed to issue notes. And if this did not suf- 
fice to produce an adequate contraction of its note- 
issues, the Bank would thereafter have to proceed by 
lessening the amount of its discount-operations. Such 
a method of procedure would diminish the profits of 
the Bank. The Bank would incur a loss (as other 
banks do) by selling its Government stock at a time 
of monetary pressure ; and if it had at the same 
time to reduce the amount of its discount-business, 
it would lose in this way also. This, we repeat, was 
the course which Sir E. Peel expected the Bank to 
follow. He regarded a drain upon the Bank as one 
of those "hard times" which occasionally befall all 


kinds of business, and which must be borne by those 
who carry on the business. He regarded it as an 
emergency for which the Bank itself must provide. 
Just as in hard times a merchant has to sell his 
reserve, whether kept in the form of goods or in 
financial stock, even though he must lose by sell- 
ing at such times, — so Sir E. Peel expected and 
desired that the Bank should act in like manner, and 
provide for the requirements of its customers by 
realising a portion, or if need be the whole, of its 
reserved assets, — these reserves, in fact, being kept for 
no other purpose. 

But the Bank does nothing of the kind. It does 
not sell its Government stock for the purpose of 
WHAT THE cancelling the notes received in payment 
BANK DOES. — ncithcr does it diminish its discount- 
business. Nor yet does it take means to provide 
itself with the gold which is requisite to carry on 
its business. It takes no loss upon itself at all. 
The loss wliich itself should incur it now throws 
entirely upon the community. Instead of selling 
its reserve of stock, and curtailing its business, 
it makes the mercantile classes sell their goods and 
contract their business. Indeed it does more than 
this. It not only throws upon the community the 
burden of replenishing its vaults- with gold, but it 
makes a profit in addition. By charging very high 
rates of discount, it not only causes gold to be brought 



into the country at the expense of the mercantile 
classes (i. e., in purchase of their artificially-depreci- 
ated goods), but, by the same process, it makes an 
addition to its ordinary profits, by wringing an extra 
sum out of these classes in the form of discounts. 

It is important to note these facts. The Bank 
Directors do not work the Act of 1844 as its framer 
desired ; they do not take the burden of their business 
upon themselves, as he expected them to do ; they 
have shifted it on to the shoulders of the community, 
and, besides shirking a loss, make an actual profit 
in addition. 

When such are the facts of the case, it is not sur- 
prising to know that the Bank Directors are unani- 
mously in favour of our present mone- 

THE BANK "^ ^ 

NOW SUPPORTS tary system. It would be strange if 
they were not. They have two separate 
reasons for upholding the Act of 1844. In the first 
place, it shields them from responsibility. Whatever 
measures they take, they appeal to the Act in justi- 
fication. Whether they raise the rate of discount or 
lower it, — ^whether they expand the currency or con- 
tract it, — if they refuse to discount cotton bills or 
Exchequer bills, or decline to make advances upon 
personal assets and securities, — " the Act " is the an- 
swer which they make to all criticism and complaints. 
They prefer to cover themselves with this shield, rather 
than to have their management judged upon the 


merits. This is natural enough, — even though the 
provisions of the Act have frequently nothing to do 
with the policy which they adopt. In the second 
place, the Directors have another and more palpable 
interest in upholding the Act. Although the Act 
makes no regulations as to the rate of discount — 
although it enjoins a contraction of the currency 
which they do not put in force, — it affords them 
a ground for doubling the rates which they charge 
for money. It enables them to charge 8 per cent 
in circumstances where formerly they used to charge 
4 per cent. They say — and it is not we who put the 
words into their mouth — "But for the Act of 1844 
it would be impracticable for us to keep on hand so 
large a stock of gold, and at the same time charge 
the rates we now do : the commercial classes would 
rebel against such conduct on our part, if we could 
not fall back in defence upon this Act of the Legis- 
lature." They feel the weakness of their position, 
and answer all criticism by an appeal to the Bank 

This is natural. Every party supports the system 
which is most advantageous for it. But the fact that 
,^^ ^^ the Bank Directors are now in favour of 

WHY li 

DOES SO. -tjjQ ^qI ig a very dubious argument in sup- 
port of that measure. When the measures which 
have given freedom to Trade were under discussion, 
no one thought of leaving the merits of the Corn- 




laws to be decided by the opinion of farmers, — or 
the Navigation -laws to be judged by shipowners, 
— or the Silk -duties by the weavers of Coventry. 
Just as little are the merits of the Bank Act to be 
decided by the opinions of the Bank Directors. The 
Act is a convenient screen, which shields them from 
responsibility; and it is also a great source of gain 
to the Bank, — and to all banks. We do not say that 
it is from these motives alone that the Bank Directors 
so strenuously uphold the Act. Self-interest uncon- 
sciously biasses the judgment, and is fertile in sug- 
gesting arguments in its own favour. The Directors 
doubtless believe that the losses which their high 
rates impose upon the commercial classes are neces- 
sary to avoid worse evils. The farmers did not say, 
" We uphold the Corn-law because, though it occasions 
high prices and hardship to the community at large, it 
gives us high profits though the masses starve." They 
said, " The Corn-law ensures the growth of more wheat 
in this country than there would otherwise be, and thus 
acts as a provision against the effects of a widespread 
famine or of a blockade during times of war." In 
like manner the Directors say, " The Act keeps more 
gold in the Bank than there would be otherwise." 
The country ignored the arguments of the farmers, 
and there is still better ground for disregarding the 
opinion of the Bank Directors. The additional 
amount of wheat which would have been grown in 


this country if the Corn -law had been maintained, 
would, every bushel of it, have come into the market 
for the supply of the community; whereas the extra 
stock of gold kept by the Bank, under the -Act of 
1844, is as useless to the community, until the Act 
be suspended or annulled, as if it were at the bottom 
of the sea. 

It is also to be observed that this unanimity on the 
part of the Bank Court in favour of the Act of 1844 
is of recent date. For several years after the passing 
of the Act, the Bank Directors were by no means 
friendly to it. As long as the Act was worked ac- 
cording to the intentions of its framers, the Bank 
Court was unfavourable to it. And for this very in- 
telligible reason, that it lessened their profits. As 
long as they adhered (which they never did fully) to 
the principle of the Act — namely, that whenever a 
drain of gold takes place, the Bank should contract its 
note-circulation — the only way of complying with the 
Act was for the Bank to sell a portion of its securities 
(of course at such times at a loss), and to contract its 
business by lending out less of its money. This im- 
posed loss upon the Bank, and the Bank rebelled 
against the system. But now that they have adopted 
a new process — now that they have found that they 
can work the Act in a way which, instead of lessen- 
ing their profits, greatly increases them, — the Direc- 
tors have changed their opinion. The Act is now to 



them what the worship of Diana was to Demetrius 
and his fellow-silversmiths of Ephesus. Hence they 
uphold the Act most religiously. 

There is another point which is deserving of atten- 
tion. The Directors assert that they are quite ready 
to work the Act under all circumstances. 


IT CAN They say that they have no desire, or 


need, to have the Act suspended. In their 
own words, they say, " Whatever may be the suffer- 
ings of the rest of the community, we can always 
save ourselves." It may be prudent for the Direc- 
tors to feign this confidence, but we hope they do 
not feel it. If they do, they are cherishing what 
may prove a fatal delusion. They reckon that, 
though they have not another note to issue, they can 
go on discounting new bills as usual, as the old ones 
run off; and that, if the demand for discounts should 
increase beyond this means of meeting it, aU they 
have to do is to raise their charge to more exorbitant 
heights. They reckon that a rate of " 20 or 30 per 
cent" will lessen the demand as effectually as if they 
were frankly to decline discounting a portion of the 
bills; and this process, of course, would give them 
enormous gains upon the bills which they continued 
to discount. It is obvious, from the rates which 
they are at present charging, that they purpose to 
exact far higher rates should a really serious crisis 
occur. If they charge 9 per cent when their stock 



of gold amounts to thirteen millions, what will they 
not charge when (as in 1857) their stock of gold is 
falling to seven millions ? But this will not do. 
The Directors are reckoning without their host. 
They are counting the community as nothing. Their 
idea in this matter is like that of a general who 
arranges his tactics on the supposition that the 
other side will remain inactive, and simply allow 
themselves to be killed. The result never corre- 
sponds to such anticipations. If the Bank shows 
itself ready to sacrifice its customers, the commercial 
classes, it is not to be expected that the latter will 
tamely submit to the proposed immolation. The cus- 
tomers of the Bank at such a time need only to call 
up a million of their deposits, and then — instead of 
being able to carry out its programme of raising the 
rate of discount to 15, 20, or 30 per cent — the Bank 
is shut up at once, and becomes insolvent (not really, 
but, like many other firms which it had sacrificed) 
by Act of Parliament. Such a result, in such cir- 
cumstances, would at once bring matters to their 
true level. Since the obstacle to the Bank's con- 
tinuance of its ordinary discount- accommodation at 
such times is purely artificial, while the consequences 
to the commercial classes are disastrous in the ex- 
treme, the sooner the Bank is stopped in such a career 
of slaughter the better. Thereafter the real state of 
matters will be acknowledged: the artificial cause of 



all the mischief will be annulled, — and the artificiaJ 
crisis and sacrifice of the mercantile classes will be 
at an end. ^1 

Whether we judge from the published sentiments 
of the more ardent supporters of the Bank Act, or 
from the recent and present conduct of the Bank, 
it seems evident that this game of enormously raising 
the rate of discount is the one which the Directors 
are resolved to play whenever another crisis like that 
of 1857 recurs. And it seems to us quite as certain 
that the game will fail. Surely, then, instead of the 
Directors awaiting, in ill-founded confidence, the de- 
plorable conflict which may arise between the Bank 
and the commercial classes, when another monetary 
crisis occurs, — it were better for all parties to reconi^^B 
sider betimes the character of our monetary legisla- 
tion, and to obtain the abolition of such enactments 
as have proved to be unworkable by the Bank and 
extremely injurious to the community. 

We think we have now sufficiently, and with care- 
ful reference to facts, demonstrated that the Act of 
1844 has failed in the object which it 


PEKL WOULD was designed to accomplish, and that it 
has subjected the country to new evils, 
of which its illustrious framer never dreamt, and 
which he would have been the first to deplore. If 
Sir Robert Peel had lived until now, and seen 
how completely his expectations liave been falsified 


by the working of the Act, he would have been the 
first to acknowledge the failure, and to amend it. 
He was a statesman who never hesitated to change 
his opinions when he found them to be injurious to 
the country. A stanch opponent of Catholic Emanci- 
pation, he became its foremost supporter. The cham- 
pion of the Corn-laws, he turned round and abolished 
them. The framer of the Act of 1844, he would — had 
he lived till now — have already tabled a Bill to amend 
it. He had made his reputation, and he was not afraid 
to risk it. At the present time, unfortunately, we have 
no Minister who enjoys the great reputation of Sir 
Eobert Peel in questions of economical science. And 
our leading men, on both sides of the House, shrink 
from having the authority of so distinguished a states- 
man quoted against them : forgetful that if Sir Robert 
Peel had been still amongst us, his practical sagacity 
would not have delayed the work of amendment 
until now. 

It is full time that the mistakes of the Bank 
Act should be recognised. It is time also that the 
GIVE FREEDOM ^^^^ ^^ Euglaud wcrc restored to that 
TO THE BANK, freedoui of action without which there 
can be no sense of responsibility on the part of 
the Directors, — no scope for real ability in the 
management, — and no adequate support to public 
credit in times of monetary and commercial difficulty. 
It is upon the sagacity of experienced men, not 



upon the dead formulism of a machine, that this 
country, and every country, must rely for an able 
and beneficial direction of so important a branch of 
the national resources. In England there has been 
far too much legislation for the welfare of banking. 
The Bank has been so swaddled and cramped, so 
favoured and fettered, so petted and plundered, by the 
State, that its natural growth was prevented, and its 
present condition is wholly artificial and anomalous.j 
First Monopoly, and now Eestriction, have exercisec 
their baneful influence upon English banking. Both 
are pernicious in principle, injurious to the commu- 
nity, and incompatible with the due use and economy^ 
of capital. 

We do not begrudge the Bank its actual amount of 
profits. Compared with those of other English banks, 
its profits are moderate. We simply object to the 
Bank making gains at the expense of the community 
by shirking its duty, and refusing to make pro- 
per provision for its banking requirements. If the 
State has imposed upon it undue burdens, that is a 
legitimate reason for its protesting against the legis- 
lation which has imposed those burdens. But it is 
too much that the Bank should lend its powerful sup- 
port to the Act of 1844, simply because it has found 
a way to shirk its duty, and to throw upon the commu- 
nity in a tenfold degree the burden which under the 
Act (and indeed irrespective of the Act) should fall 


upon itself. In order to save itself from the ordinary- 
losses incidental to banking, it covers the country with, 
bankruptcies, sacrifices the mercantile classes, and 
throws thousands of the working-classes out of em- 
ployment. Such a course of procedure becomes still 
more objectionable when the Bank actually makes an 
addition to its gains out of the calamities which it thus 
imposes on the country. 

As to the commercial classes, a continuance of the 
present system is the worst evil that can possibly be- 
A HINT TO f^li them. And if they cannot protect them- 
TBADE. selves — if the power which a long-continued 
monopoly has conferred upon the Bank is too strong 
for them, — we should advise them to lighten the 
burden thus thrown upon them by proposing a com- 
promise. " Agree with thine adversary quickly whilst 
thou art in the way." Let the mercantile classes 
take the matter as philosophers, and make the best 
of a bad bargain. Let them " send round the hat" 
among themselves, and collect an annual sum which, 
whenever a drain of gold occurs, shall be employed 
in purchasing gold at a premium on the Continent, 
in order to replenish the Bullion vaults of the Bank. 
By paying this premium they will, of course, escape 
the black-mail levied upon them by the "Old Lady in 
Threadneedle Street" in the form of high rates of dis- 
count, — as well as the attendant depression of the 
home-market, and the depreciation of their goods to 



the extent of 20 or 25 per cent. In all earnestness — if 
the present system were to be maintained — the mercan- 
tile classes would make a gain by adopting such a course. 
At present the incubus under which they suffer is 
as firmly clasped upon them as was the Old Man of 
the Sea upon the back of poor Sinbad : and if they 
cannot shake it off, tliey had much better buy it off. 

When a powerful corporation like the Bank of Eng- 
land thus shirks the duty of providing for the legiti- 
mate demands upon it, it is well to examine 


BANK SHIRKS wlietlicr there are not some special causes 


lor such conduct. Now, one of these un-; 
questionably is, the existence of the "variation" 
theory as the orthodox creed of monetary science. 
That creed holds that when gold leaves the country, 
it is incumbent to attract it back again at once (it 
would return in natural course of itself*), by de- ^| 
pressing the home-market, and inducing foreigners 
to send over specie in purchase of the depreciated 
goods of our merchants and of the community in 
general. We have previously pointed out the de- 
merits of this system, and need not recapitulate 
them. We allude to it now simply to explain the 
conduct of the Bank. When such is the established 
creed, the Bank naturally reasons thus : — " Our gold 
is leaving us. Losses, bankruptcies, and want of 
employment must be suffered by the country in 

* See supra, pp. 235-238. 


one way or other, in order to stop the drain. And 
since it can't much matter to the country in what 
manner we inflict upon it this suffering, it is best 
to do it in a way that is profitable to the Bank, 
instead of in a way that makes us as great sufferers 
as the country." This, no doubt, is the reasoning of 
the Bank Court. In accordance with the prevailing 
creed, the Bank regards the sacrifice of the community 
as an inevitable calamity ; and, with that point settled, 
it sees no harm in doing the business in the manner 
most profitable for itself. If the Bank is to play 
the ungracious part of executioner, let it be well 
paid for its work. The " variation theory," as 
we have demonstrated, is essentially absurd. For 
the sake of the country, we hope soon to see it aban- 
doned for a wiser and a better system. But as long 
as it remains the orthodox creed of the day, the only 
objection that can be taken to the Bank's view of the 
matter, as above described, is, that since the Bank 
finds this course so profitable to itself, it may be 
ready to play the part of executioner too often. If 
it shared the losses which it inflicts upon the com- 
munity (as Sir R Peel proposed), there would be an 
adequate guarantee against an unnecessary recourse 
to stringent measures. In that case, the Bank's losses 
would have to begin first. Moreover, in such circum- 
stances we could rely upon the Bank Court giving 
an unbiassed opinion upon the merits of the Act 




which is the main cause of these recurrent national 
calamities. But, as long as the Bank is exempted 
from the general suffering occasioned by its present 
system — nay, makes an extra profit out of it, — its 
interests in this matter are directly at variance with 
those of the community. ^| 

There is another reason, or inducement, for the Bank 
pursuing its present system of action. The profits of 
the other leading banking establish- 
ments in England averaged last year 
20 or 25 per cent; this year — -judging from the last 
half-year, and from the fact that the rate of discount 
is now higher than before — the average will be 30 per 
cent. The Bank of England, on the other hand, is 
only making 12 per cent. Naturally the Bank Court 
is dissatisfied, and adopts every legal means of in- 
creasing the dividend. Twelve per cent, it is true, is 
a very good profit on banking business. The profits 
of every kind of business in the long-run are depen- 
dent upon the amenities of the business and upon its 
risks. The man who invests his capital in landed 
property does not get more than 3 per cent upon it : 
for the possession of land is a species of luxury, — 
it confers a greater social position than any other 
investment, and is attended with no risks. In like 
manner the farmer, whose avocation is healthy and 
agreeable, and attended by few risks, does not on the 
average make more than 8 per cent on his capital. 


The great merchants and manufacturers, on the other 
hand, who are exposed to serious vicissitudes of 
fortune, reckon upon getting 25 per cent profit 
on each year's transactions, — but, as a set-off to 
this, in some cases they get only 5 or 10 per cent, 
or none at all. And those tradesmen whose gains 
are in a gTeat measure dependent upon the caprices 
of fashion, expect a similar high rate of profit. But 
banking belongs to the former rather than to the latter 
style of business. A banker is an influential man ; 
his business gives him a good position in society ; and 
it is not attended with much risk. Hence, we say, 
10 per cent is a good rate of profit in banking. Nor 
is this a mere theoretical inference. In Scotland, 
where banking has been systematised to a greater 
extent than in England, and where certain fixed rules 
have been recognised and practised for at least a 
century, — we find that the profits of banking on the 
average do not amount to 10 per cent. Even in this 
year of very dear money, the profits will not reach 12 
per cent. And the regularity of system pursued by 
the Scotch banks is evidenced by the fact that the 
percentage of profit of each and all of them is almost 
identical. We find the same fact evidenced by the 
dividends of the Bank of England and of the Bank of 
France. From 1823 up to 1854, the yearly dividends 
of the Bank of England varied from 7 to 8 per cent : 
it is only since 1854 that the dividends have risen 



to 9, 10, and tliis year to 12 per cent. For these 
several reasons, we think we are justified in regarding 
10 per cent as a fair average profit in banking. The 
rate of profits, of course, will be higher in the case 
of banks which attract an exceptionally large amount 
of deposits in proportion to their paid - up capital : 
but still, on the average, 10 per cent is a fair profit 
on tliis kind of business. Nevertheless, when the 
fact is that the other leadingj Encflish banks are at 
present reaping 25 or 30 per cent profit, it is natural 
for the Bank of England, the greatest establishment of 
the kind in the country, to do its best to lessen the 
disproportion between its own dividends and those 
of other great banking establishments. 

Now, why is it that the profits of the Bank of Eng- 
land are so much less than those of the London joint- 
stock banks ? A glance at their balance- 
sheets at once explains the matter. The 
capital of the Bank of England is enormously in ex- 
cess of what is required to carry on its amount of busi- 
ness ; the capital of the London joint-stock banks, on 
the other hand, is very much below the amount which 
in ordinary cases is deemed requisite for safe banking.* 
The paid-up capital of the Bank amounts to 14J mil- 

* We do not mean to say that the London joint-stock banks are 
carried on with inadequate capital : we hold no such opinion. Ex- 
perience is the only guide in such a matter, and unquestionably the 
London joint-stock banks have worked exceedingly well. The 
smaller the amoufit of paid-up capital with which a bank can safely 




lions, while that of the London joint-stock banks in 
no case exceeds one million. In the next place, the 
"Eest" (or fund set aside to supplement the dividend 
in years of low profits) amounts to 3 millions in the 
Bank of England, while in the new joint-stock banks 
it rarely exceeds a tenth of that amount. Now, put- 
ting out of view the " Eest " — which, though really a 
part of the paid-up capital, is reducible at pleasure to 
any amount which the Bank Court may think advis- 
able, — it is manifest that an establishment which has 
a paid-up capital of 14 J millions is unduly weighted 
in a race with others whose paid-up capital does not in 
any case exceed one million. Its net profits would 
require to be about fourteen times larger than theirs 
to allow of its paying the same amount of dividend. 
The liabilities of the Bank (consisting in nearly equal 
proportions of its note-issues and of its deposits) amount 
to 40 millions. The Bank of France, with an identical 
amount of liabilities (three-fourths of which are note- 
issues, and the other fourth deposits), has a paid-up 
capital of less than 7J millions. A Scotch bank, if it 
had the same amount of liabilities {i. e., 40 millions), 
would have a paid-up capital of five or six millions. 
An English joint-stock bank, with the same amount 

carry on its operations, the better: for the larger will be its profits. 
In the text, we simply state the fact — namely, that the capital of 
these banks is very much less than has hitherto been found safe in 
ordinary banking. — For a synopsis of the position of these banks, 
and also of the Scotch banks, see Appendix A. 



of liabilities, would have a paid-up capital of two 
millions. The Bank of France is a sufficiently exact 
parallel to the case of the Bank of England, yet 
the capital of the former is only one-half that of the 
latter bank ; and nearly 2 J millions of it are with- 
drawn from banking purposes, being lent to the State. 
In fact, the Bank of France conducts its business with 
an available capital of five millions, which is just 
about what a Scotch bank would do if it had an equal 
amount of liabilities. From these facts it may safely 
be inferred that the capital of the Bank of England is 
at least double what is necessary for the safe prose- 
cution of its business. 

How comes it, it will be asked, that the Bank's 

capital is so needlessly large? No bank with the 

same amount of liabilities would ever 


think of calling up so great an amount of 
capital, and thereby needlessly, and to a most serious 
extent, diminishing its rate of profits. Why has the 
Bank of England done so ? The explanation is simple. 
The calling up of these 14 J millions has been the chief 
means by which the Bank purchased its privileges from 
the State. Every expiry of its charter was made an 
occasion for new exactions on the part of the State, 
and for new privileges obtained in return by the Bank. 
It was in return for a loan of its capital that the State 
conferred upon it (in 1708) that monopoly which has 
worked so much mischief to the country ; and it was 


by similar or analogous means that its charter was so 
often renewed, and its privileges extended. The large 
capital was not raised by the Bank as necessary to 
carry on its business, but in order to purchase a con- 
tinuance or extension of privileges from the State. 
It is the price which it has paid for privileges ob- 
tained at the expense of the community. For the 
sake of getting certain loans on easy terms from the 
Bank, the Government in past times conferred upon 
that establishment a monopoly unfair to the other 
banks, and most detrimental to the country. That is 
the meaning of the largeness of the Bank's capital. 

The age of monopoly is past ; and gradually the 
monopoly of the Bank, already encroached upon, must 
be diminished till it disappear. But, in proportion 
as this end is to be attained, the State must give up 
the loans, &c., by which the Bank purchased its privi- 
leges. Thirty years ago one-fourth of the debt due 
by the Government to the Bank was paid off; and 
whenever the state of the finances permits, the process 
of repaying these loans ought to be resumed. The 
repayment of the eleven millions still due by the 
Government to the Bank is, in fact, the very best 
form in which the reductions of our national debt can 
be effected. The Government may fairly insist that 
the Bank shall accept repayment in the form of Con- 
sols, yielding an equal amount of interest to that 
which the Bank at present receives upon the loan. 




Instead of receiving 3 per cent upon the loan, the 
Bank will be paid in Consols at par, yielding an 
equal amount of interest. Thus, suppose Consols stand 
at 91, ten millions will suffice to pay off the debt of 
eleven millions due to the Bank, without the Bank 
being a loser. Of course, such repayment would be 
spread over several years; so as not to embarrass 
the Government, nor unduly affect the value of Con- 
sols. Say the repayment were spread over ten or 
fifteen years, then about three-fourths of a million 
sterling would each year be invested by the Govern- 
ment in the purchase of Consols, which thereafter 
would be handed over to the Bank. As upwards of 
200 millions of Consols change hands every year, the 
effect of these purchases by the Government would be 
quite imperceptible, even though they were very much 
larger. Thereafter (unless some limitation were im- 
posed, inimical to the freedom which we desire for 
the Bank), the Bank would have full control over the 
Government Stock thus transferred to it ; and might 
sell portions of it at its convenience, — employing the 
money thus received in the discount of bills, the pur- 
chase of gold, or in any other part of its business. 
Besides the undue magnitude of its capital, the 
Bank of England lies under another bur- 


FOR ITS den as compared with other banks, in the 

shape of the £120,000 a- year which it 

pays to the Government for the continuance of its 


Charter. Such a payment is a relic of a bad and 
antiquated system. Like the loans which caused the 
Bank's capital to be unduly augmented, this payment 
is exacted by the Government in return for the privi- 
leges accorded to the Bank. The system of giving 
peculiar privileges to any company is now regarded as 
a most improper interference on the part of the State, 
injurious to the community, and unjust to other com- 
panies of a similar kind. Every one is now agreed 
on this point. Nevertheless, it does not necessarily 
follow that this annual impost upon the Bank should 
be abolished. This would be tantamount to increasing 
the Bank's profits to the extent of £120,000 a-year. 
The payment is levied as a means of compensating 
the country for the advantages acquired in former times 
by the Bank to the public detriment ; and it is only 
in proportion as this detriment is removed that the 
Charter-money can be lessened. The evil to the com- 
munity created by the Bank's long-continued monopoly 
cannot at once or easily be undone ; and since the evil 
remains, the compensation-money may fairly be exacted. 
But, on principle, it is a highly objectionable arrange- 
ment. And moreover — as a practical question, — 
although it is true that the exaction of this sum 
tends to lessen the virtual monopoly of the Bank, by 
allowing other banks of issue to compete with it on 
less unequal terms, this plea cannot be adduced in 
support of the arrangement as long as Parliament 



actually forbids the establishment or development oi 
banks of issue to compete with it at all. 

The profits of the Issue Department of the Bank 
may be stated thus. On all note-issues above fourteen 
PROFIT ON millions the Bank has no profit, — because 
ITS NOTES. j|. jj^ijgi; ]jq2(J goi^ Iq Q^Yi equal amount (minus 

£650,000, on which the profits go to the Government). 
The profit on these fourteen millions of notes (if 
reckoned at 3 per cent) is £420,000 a-year. Deduct 
from this sum £117,000, being the cost to the Bank 
of making and managing a note-circulation of twenty 
millions ; also £24,000 paid by the Bank to other 
banks which undertake to issue its notes on receiv- 
ing one per cent of commission ; also £60,000, being 
the composition paid to the Stamp-Office upon the 
note-issues ; also £120,000, which the Bank pays 
for its Charter. Thus from £420,000 there is to be 
deducted £321,000, — leaving a balance of profit to the 
Bank upon its note-issues of £99,000. This was 
Sir R Peel's estimate in 1844. But two other mat- 
ters must be taken into account before the balance 
can be correctly struck. If the Bank were in a natural 
condition, instead of having a capital of fourteen mil- 
lions (partly lent to the Government, and partly in- 
vested in Government stock), one half of that amount 
invested in Consols would suffice. The seven millions 
of capital that might thus be spared would, if invested 
in the Bank's business, yield a larger profit than the 



3 per cent which it gets from them at present. On 
the other hand, in these times of dear money, the 
profit on the fourteen millions of the Bank's note- 
issues may be taken at a much higher rate than the 3 
per cent at which it was estimated in 1844. Previous 
to that year, although the Bank's charge for discount- 
ing bills averaged 5 per cent, yet its advances on Con- 
sols, &c., were made at 3 or 4 per cent. ; so that Sir 
R. Peel, dealing generously, was justified in estimat- 
ing the profit on the notes at only 3 per cent. 

The profit and loss account of the Issue Department, 
as reckoned by Sir R Peel in 1844, was as follows : — 

Profit on 14 millions of notes at 3 per cent, . £420,000 

Cost of note-circulation, , . . £117,000 

Commission of 1 per cent to other banks, 24,000 

Composition with Stamp-Office, . . 60,000 

Payment for Charter, .... 120,000 


Net profit to Bank on its note-issues, . . . £99,000 

Owing to the higher rates of discount exacted by 
the Bank, the case is now greatly altered. For the 
last twelve months, the gross profit upon the Bank's 
note-issues, instead of 3 per cent, has been 8 per cent, 
—instead of £420,000, it is now £1,112,000 : so that, 
after deducting the above-stated £321,000 of costs and 
charges, the net profit on the Issue Department has 
this year been £799,000, — eight times greater than 
in 1844, when the conditions of its Charter were last 
fixed by the State. If the Bank continues its present 



system of charging twice as much for its advances 
as it used to do, this fact will have to be taken into 
account whenever its Charter is renewed, and if the 
Government proceeds on the same principle as in 
1844, the payment which the Bank makes for its 
privileges must be doubled. 

Although the dividends of the Bank appear small 
compared with those of the London joint-stock banks, 
the amount of its profits, in relation to its deposits, 
is immensely larger than theirs. Take, for example, 
the case of the London and Westminister Bank. The 
amount of its deposits is fully 18 J millions ; that of the 
Bank of England is rather more, say 21 millions. But 
the net profit of the London and Westminster Bank 
during the last half-year was only £234,000 ; while 
that of the Bank of England was £850,000, or more 
than 3^ times larger. This great excess of profit arises 
from the note-issues of the Bank: the profit upon 
which, during the last half-year, must have amounted 
to fully half a million net — i. e., after deducting every 
cost connected with its note-issues, and also the 
sums paid to the State for Charter, &c. The profits 
of the Bank, in truth, are at present very great ; and 
it is only the undue amount of its capital which 
makes its dividends appear small compared with 
those of the London joint-stock banks. 

In the case of banks existing under natural condi- 
tions — that is to say, when the State confers no privi- 


leges upon any of them at the expense of the others, 
BEvisioN OP — ^^® note-issues of each bank bear a gen- 
iTs CHARTER, gp^l piopoition to Its amount of deposits. 
The instrument of exchange issued by a bank 
ought to have a certain relation to the loanable 
capital of the bank which it is designed to utilise 
and represent. In the case of the Scotch banks, 
for example, the proportion of note-issues to deposits 
is less than one-fifteenth. The Bank of England, 
on the contrary, has a note-circulation equal to the 
whole amount of the loanable capital entrusted to its 
keeping. After making every allowance for the influ- 
ence of prestige, it may fairly be said that three-fourths 
of the note-circulation of the Bank of England are due 
to the effects of the monopoly conferred upon it by the 
State. And, whether reasoning from these premises or 
not. Sir R Peel, in 1844, regulated the State's charge 
upon the Bank pretty nearly in this proportion. As- 
suming that the Bank made a profit of 3 per cent 
(£420,000) on the 14 millions of its note-issues for 
which it is not compelled to keep gold to an equal 
amount; and deducting from this sum £140,000 for 
the Bank's cost upon its note-issues, he charged upon 
the balance (£280,000) the sum of £180,000 as an 
impost which the State might fairly levy upon the 
Bank. If Sir R Peel had foreseen that the Bank's 
profit upon its note-circulation would be greatly in- 
creased (as it has been in consequence of its increasing 



the rate of discount), lie would doubtless have raisec 
in equal proportion the sum which the Bank pays for 
its Charter. Ml 

In truth the Bank of England now relies for its 
profits almost entirely upon its note-issues. While the 
joint-stock banks derive their whole profits from their 
deposits, and seek to increase the amount of these 
deposits by offering favourable terms to depositors, 
the Bank follows an entirely different course. It takes 
no measures to attract deposits, — it resolutely refuses 
to pay interest of any kind to those who bank with it. 
It stands still, while the rest of the world moves on. 
Compared with those of other banks, the amount of 
its deposits remains stationary. The loanable capital 
entrusted to its keeping hardly exceeds in amount that 
which is held by some of the leading joint-stock banks, 
— as, for example, the Union and the London and 
Westminster Banks. And yet, nearly a third of the 
Bank of England's deposits consist of Government 
money, — which it receives in consequence of its State 
privileges, and for the possession of which the other 
banks cannot compete. Deduct this amount of Trea- 
sury balances, and the Bank, judged by its deposits, 
would hold only a secondary position among the Lon- 
don banks. The effect of this policy (or rather stag- 
nation) on the part of the Bank is, of course, to make 
it rely almost exclusively upon its note-issues for its 
gains. If it is to increase its gains — if it is in any 



measure to keep pace witli the increase of profits 
wliich the other banks are obtaining from the yearly- 
increase of their deposits, — the Bank must do so by 
working its note-issues in such a way as to make them 
more profitable. In other words, it must charge more 
for the use of its notes. The Bank must make the 
community pay more for the use of the paper-money 
which the State permits it to issue, — and in the 
making of which issues it has a virtual monopoly. 
In short, it must keep its rate of discount at a higher 
level than before. And, as we have shown,* this is 
the very course which it now follows. 

As a renewal of the Bank's Charter is approaching, 
a revision of the agreement between the Bank and the 
State, and we trust of our whole monetary system like- 
wise, will soon take place. As regards the position of 
the Bank, it is so anomalous that, as a practical affair, 
it is hardly possible to suggest a new arrangement based 
simply upon the natural principles of economical 
science. We cannot at once annul the past, and begin 
de novo. The position of the Bank, and its relations 
with the State, present a Gordian knot of entangle- 
ment. Only bit by bit can the knot be loosed : for it 
would be unwise to solve it by the summary process of 
the great Macedonian. But there are three leading 
points to be kept in view. The first of these is, that 
the present embargo laid upon six or seven millions 

* See suprUf p. 267. 



of gold should be annulled, and the Bank shoulc 
have the free use of all its resources. Secondly, its 
monopoly is injurious to the community, and may 
fairly be paid for, — the Bank's note-circulation being 
far above the amount it would have obtained but for 
the monopoly, and its power over the currency being 
proportionate. But thirdly, and most important of all, 
— ^it must be remembered that, as long as freedom of 
issues is prohibited, it is vain for the Government to 
seek compensation for the Bank's monopoly by levy- 
ing upon it a proportionate charge ; for, as long as the 
present monopoly of note-issues is maintained, what- 
ever charge is laid on the Bank can be — as it at pre- 
sent is — transferred by the Bank to the shoulders of 
the community. 

There is a source of profit of which the Bank 
might legitimately avail itself, and which would add 
to its gains in a less objectionable manner than its 
present course of charging abnormally high rates 
of discount upon inadequate grounds. When its 
stock of bullion is in excess of the usual amount, the 
Bank, instead of keeping a portion of its gold lying 
useless in its vaults, would do well to send it 
abroad, — by investing in foreign securities, ready to 
be sold and re-converted into gold when necessary. 
At present, when gold in unusual quantity flows into 
its vaults, the Bank reduces its rate to 2 per cent, 
and yet, even upon these terms, cannot get its surplus 


stock of notes taken off its hands. The Bank gains 
little or nothing by such a reduction of its rate, even 
though its discount-business be thereby greatly en- 
larged. If the Bank's weekly amount of discounts be 
seven millions at times when the Bank-rate is 4 per 
cent, then the weekly amount of its discount-business 
must be doubled, in order to be equally profitable 
when the rate is at 2 per cent. Would it not be 
better, then, for the Bank if, when it has a plethora 
of gold, it were to invest a portion of its surplus 
bullion in the purchase of foreign stocks, — say in 
New York, Paris, Calcutta, &c. ? , This investment, 
of course, to be in addition to its .ordinary banking 
reserve of this kind which we have proposed.* When 
the Bank's stock of bullion is unusually large, the 
amount of notes which it is empowered to place in 
its banking department is greatly in excess of its 
requirements, either for issue or as a reserve. If it 
were to employ a portion of this surplus gold in the 
purchase of foreign securities, it would derive a profit 
from the investment, by obtaining interest on a large 
sum that would otherwise lie sterile in its vaults. 
When it has fourteen millions of bullion in its posses- 
sion, it can issue £28,650,000 of notes — eight millions 
more than is required by the public in ordinary times. 
Every million of gold above this amount, therefore, 
might be invested in the manner we have described, 

* See supraj p. 249. 



not only with profit to the Bank, but with no loss to 
the public. For, as gold in its vaults began to sink 
below fourteen millions (or whatever were the point 
fixed), the Bank would sell out a corresponding portion 
of its foreign securities, and place specie to the same 
amount in its Issue department* This would be 
a legitimate method of increasing the profits of the 
Bank. Such profits accruing to it would be a source 
of satisfaction to every one, and would be regarded in 
a very different light from the augmentation of its 
gains which it now makes in seasons of monetary 
difficulty, at the expense and suffering of the com- 
munity, by raising its rate of discount to the exorbi- 
tant height of 9 or 10 per cent. j^l 

But why should there be any " excess " of gold at 

all in the Bank ? This is occasioned by the peculiar 

provision of the Act of 1844, which enacts 


FELLED TO that tho Bauk shall buy all the gold that 

BUY GOLD. . , , . 1 T . 1 • , T 

IS brought to it, whether it desires to have 
it or not. It is compelled by the Act to receive 
deposits of bullion just as if they were deposits of 
money. If a man brings to it a certain sum in the 
form of a cheque upon another bank, or in the notes 
of another bank, the Bank is at liberty to decline open- 
ing an account with him, or to give him in exchange 

* Or, instead of paying gold to customers who desire to export 
it, the Bank might let them draw upon its credits at New York, 
Calcutta, or other places : which would attain the same object by- 
different means. 



an equal sum in its own notes. Bvit if he tenders to 
it a certain quantity of bullion, it is compelled to pur- 
chase that gold from him, either by giving him notes 
to an equal amount, or by placing that amount to his 
credit. No such necessity is imposed upon any other 
bank. The Bank of England is the only bank in the 
world which is placed under this compulsion. This is 
a great violation of the freedom of banking. Why 
should the Bank of England be subjected to it ? The 
bullion which it is compelled to purchase from all 
comers, is not money. Take one of those glittering 
ingots which are ceaselessly being brought to the 
Bullion Office, and taken away again, and see if it 
will anywhere pass as money. Will any tradesman 
accept it in payment of his account ? Will any bank 
receive it in payment of a bill, or as a sum to be 
placed to the account of the bringer? Or will the 
Government accept it in payment of taxes? Not a 
bit of it. Even cut it up into small pieces, and let 
each of those pieces be of the exact weight and purity 
of a sovereign or half-sovereign, and the result will 
still be the same. It will not circulate : no one will 
receive it as money. Why, then, should the Bank of 
England be compelled to receive it as money ? If 
the Government wiU not receive bullion as money, 
why should it compel the Bank to do so ? 

The bullion which the Bank is thus compelled to 
purchase is not only not currency, but the greater part 



of it is not meant to be turned into currency. Nearly 
the whole of it is kept in the Bullion Office in the form 
of ingots. The Bank does not turn it into money : to 
do so in fact would be a disadvantage. It is not kept 
by the Bank in the form of sovereigns ; and it, is not 
wanted in the form of sovereigns by those who with- 
draw it from the Bank. It is kept simply as bullion, 
which is not meant to be converted into English 
money, but to be exported (as it was imported) simply 
as a valuable commodity, — as an article which is in 
general request over one-half of the world, and which 
therefore may be employed for settling international 
accounts. Bales of cotton, cargoes of iron, or coal, or 
corn, will serve the same purpose, but gold (at least in 
the Western world) will do it better. Bullion is only 
brought to the Bank when there are no foreign buyers 
for it : and there it remains, as in a place of tempo- 
rary deposit, until it is wanted for export. It is 
simply as a commodity of widely-acknowledged value 
that gold is brought to the Bank of England, — it is 
in the same character that it is kept in the Bullion 
Office', — and it is in the same character that it is taken 
away. It is not money — it is not currency at all: 
why, then, should the Bank be compelled to treat it 
as if it were money ? Why should the Bank be com- 
pelled to purchase bullion whether it wants it or not ? 
The consequence of the present arrangement is, that 
the Bank at times has to overload itself with gold in 



the form of bullion when it does not want gold in 
any shape. 

This arrangement, under the system pursued by 
the Bank, occasions many unnecessary and unnatural 
fluctuations in the value and amount of the national 
currency. Upon these points we have already spoken. 
At present we regard the arrangement in a different 
light, — simply as one of those needless and injurious 
interferences with the freedom of banking which are 
so numerous under the Act of 1844. Let the Bank 
buy bullion or not as it pleases. It knows its own 
requirements, and will purchase bullion in accordance 
with its wants. To compel it to buy bullion which it 
does not require, and which it does not desire to have, 
is an objectionable infraction of its freedom. Instead 
of compelling it to buy the bullion, let the Bank, 
when it has enough of gold, make advances upon the 
bullion brought to it, just as it does upon other assets 
and securities. Bullion, in fact, ought to be dealt with 
in the light of a first-class biU, — upon which the Bank 
is always ready to make advances. This would entail 
no hardship upon the holder of the bullion. There is 
already an establishment, maintained by the State, for 
the very purpose of converting bullion into British 
money. Any man who wishes to convert his bullion 
into money, has only to take it to the Mint, and this 
will be done for him gratis. On the other hand, if he 
does not do this — if he chooses to keep his gold in 



the form of bullion, he must expect it to be dealt 
with accordingly, — namely, as a valuable commodity, 
upon which the Bank of England or any other bank 
will readily advance money, but which neither our 
banks nor the Government, nor any other party, can 
be expected to accept as if it were money of the 

We come now to the last portion of the monetary 
system established by the Act of 1844 — namely, that 
which relates to the general paper-currency of the 
kingdom. Having already discussed fully, and we 
believe fairly — certainly, in an honest spirit — the 
various theories and principles relating to monetary 
science, this concluding section of the subject can be 
treated with comparative brevity. 

The Act of 1844 enacted that no new banks of 
issue should be established in any part of the king- 
RESTRicTioN OF ^0^' ^hc uotcs whlch the existing 
BANK-ISSUES. "banks of issue were allowed to continue 
were fixed at their average amount at the time when 
the Act was introduced. The banks of Scotland 
and Ireland were allowed to issue notes beyond that 
amount, on condition that for such extra issues these 
banks should keep on hand an equal amount of gold. 
Such issues accordingly yield no profit. Moreover, 
no provision was made for the lapse of issues aris- 
ing from any of these banks discontinuing business : 


SO that any vacuum in the Scotch or Irish currency 
arising from this cause can only be filled up by the other 
banks extending their issues and correspondingly in- 
creasing their stock of gold. The provincial banks of 
England (i. e., all the English banks of issue except the 
Bank of England) were placed on a somewhat different 
footing. They were not allowed to extend their " fixed 
issues " (i. e., the average amount of their note-circula- 
tion at the end of 1843) upon any terms, — not even on 
the condition of holding gold to an equal amount. If any 
addition to the English note-circulation became neces- 
sary, it was to be supplied by means of the notes of 
the Bank of England. It was also enacted that, in the 
event of any of the English banks of issue discontinuing 
business, the vacuum thereby occasioned in the currency 
should be supplied by the Bank of England to the ex- 
tent of two-thirds of the lapsed issues. And this only 
on two conditions : namely, that the Bank of England 
should be empowered to do so by an Order in Council ; 
and also, that the profit upon these additional issues 
of the Bank (for which it was not required to keep an 
equal amount of gold) should go to the State. 

The effect of these regulations has been greatly to 
reduce the number of the banks of issue, and to some 
extent to reduce the amount of currency. When the 
Act of 1844 was passed, the number of banks of issue 
in England (exclusive of the Bank of England) was 
275, — it is now 202; in 1844 the authorised issue of 




those banks was £8,648,853,— it is now £7,535,080. 
Thus, since 1844, the banks of issue in England have 
been reduced in number by 73, or considerably more 
than one-fourth ; and their authorised circulation has 
been diminished to the extent of nearly one-seventh. 
In lieu of the £1,113,773 of lapsed English issues, the 
Bank of England has been authorised to issue notes 
of its own to the extent of £650,000, — leaving a defi- 
ciency to the amount of nearly half a million (£463,773). 
And as a lapse of the authorised note-issues of Scot- 
land has taken place to the extent of £337,938, the 
total diminution of the currency from this cause at 
present amounts to rather more than £800,000. 

During the twenty years which have elapsed since 
the passing of the Bank Act, the English banks of 
issue have been diminishing in number almost at 
the rate of four every year. Already one-fourth of 
them have discontinued business; and if the same- 
process continues, as it is likely enough to do, they 
will be nearly all extinct before the end of the present 
century. Thus, under the Act of 1844, we are steadily 
marching on to a time when the Bank of England will' 
be almost the only bank of issue in the country. The 
virtual monopoly of the circulation which the Bank 
already possesses will then become absolute. 

There is another feature of the Act of 1844 in 
its relation to the general note-issues of the country 
which merits attention. This is the enactment that 


upon all the additional issues made by the Bank 
of Enoiand in partial replacement of the 


AND NOTE- lapsed issues of the English banks, the 


profits shall go to the State. This is an- 
other interference of the State with the freedom of 
banking. If the State, in return for receiving the 
profit upon these note-issues, were to become secu- 
rity for them — if it were to take upon itself the duty 
of ensuring their convertibility, — the arrangement 
would at least be intelligible. There would be a 
quid pro quo. But the State does nothing of the 
kind. It does not in any way guarantee the con- 
vertibility of these note-issues. What, then, is the 
meaning of this arrangement ? Upon what grounds 
is this iuterference ^vith banking business made ? It 
is important to liave a definite answer to this ques- 
tion, because in many quarters the provision of the 
Act of 1844 in this respect seems to be regarded as 
a precedent which is to be accepted without discus- 
sion. Last spring the Chancellor of the Exchequer, 
in his Bill for replacing the lapsed issues of Scotch 
notes, proposed to extend the same principle to Scot- 
land, — doing so, not on the ground that the principle 
was a right one, but simply because it had been 
adopted in the Act of 1844. This is a very erroneous 
way of proceeding. In every case, and especially 
when the proposal is not merely to maintain a prin- 
ciple but to extend its operation, a question of this 



kind should be discussed upon its merits. The real 
question is, not whether such a principle was adopted 
in the Act of 1844, but whether it is a right one. 

The motive which led to the adoption of this prin- 
ciple in the Act of 1844 was twofold. In the first 
place, it was a natural consequence of the system of 
monopoly which was embodied in that measure. The 
Act of 1844 extended the monopoly of the Bank of 
England. It enacted that whatever extension might 
take place in the English note-issues should be made 
exclusively by the Bank of England ; and that what- 
ever diminution might take place in these issues 
should likewise, so far as it was replaced at all, 
be replaced by Bank of England notes. In return 
for this extension of the Bank's monopoly, the Act 
required that the profit upon these issues should be 
paid to the State. It is the old story over again. 
More monopoly to the Bank, and more payment 
exacted from the Bank by the State. In 1844 this 
vicious game was resumed. The State extended the 
privileges conferred upon the Bank to the detriment 
of the community, and in return exacted a larger pay- 
ment from the Bank. The profit upon the £650,000 
of the Bank's issues in partial replacement of the 
lapsed issues of other banks (if reckoned at 3 per 
cent), is just £20,000 added to the annual sum which 
the Bank pays for its Charter — i. e., for the monopoly 
conferred upon it. 


As a similar monopoly, in a less concentrated and 
injurious form, was conferred in 1845 upon the Scotch 
banks, it follows, of course, that they also may be 
made to pay for their monopoly. The vicious princi- 
ple of the State selling privileges to private establish- 
ments, which has been the bane of English banking, 
is now to be introduced into Scotland. It is true that 
the Scotch banking system was so fully developed in 
a natural form prior to the introduction of the princi- 
ple of monopoly in 1844, that less evil can be done in 
Scotland with her dozen of independent and co-equal 
banks, than in England, where the monopoly of the 
Bank began so early, and was made so stringent, that 
no rival banks of issue have ever been able to estab- 
lish themselves. Nevertheless, it is deplorable to 
see so vicious, and we should have thought so anti- 
quated, a system actually receiving fresh extension 
at the present day. We boast of " free-trade " — any 
one who insinuates a word against the doctrine is 
regarded as an antiquated imbecile : yet the system 
of monopoly, of restriction, of "protection" — or by 
whatever name it may be called — which we have 
abolished in all other forms of trade and industry, 
has been revived and is daily being extended in 
regard to banking. It is a startling anomaly. It 
is a fact so anomalous — so diametrically opposed 
to the spirit of the times, and so injurious to the 
community, that the only difficulty is to account for 



its existence. Instead of proposing to extend this ' 
deplorable system to Scotland, the only thought of 
an enlightened statesman ought to be, how it can be 
most speedily, and for ever, eradicated from the bank- 
ing laws of England. JBI 

This appropriation of the profit on note-issues, we 
repeat, is simply the price which the State exacts 
from banks upon which it has conferred privileges 
injurious to the community. The right course is, 
not to continue or extend this impost upon the 
banks, but to remove the occasion for it, — by abolish- 
ing the monopoly of which it is the price. Even as 
a matter of compensation, it is useless. Every tax 
which the State lays upon the banks, can be (and 
is) shifted by them on to the shoulders of the com- 
munity, by the simple process of exacting higher 
rates of discount. Under the present system of 
monopoly, no other result is possible. Availing 
themselves of their command over the currency, the 
banks of issue can nullify every impost laid upon 
them by the State, by simply transferring the loss 
to the community. What does the community gain 
by the State making these banks pay for their 
monopoly, when for every thousand pounds thereby 
added to the revenue, the community have to pay a 
like sum to the banks in the form of increased 
charges ? The whole arrangement is illusory, anti- 
quated, vicious. Sweep it away, — by removing the 


evil which it is vainly designed to meet. Instead of 
seeking to make banks of issue pay for their mono- 
poly, abolish the monopoly. 

There is another motive which may induce a State 
to appropriate the profit on bank-notes. And that is 
when the Government desires gradually to extinguish 
the existing note-issues with a view to establish a 
State Bank. We see this process at present going on 
in the Federal States of America. There the State has 
issued a new currency of its own (not convertible into 
gold, but receivable in payment of taxes) ; and it has 
imposed a confiscatory tax upon the note-issues of the 
old banks in order gradually to annihilate them, and 
leave the ground clear for the new National banks 
which are being established. And as these National 
banks issue only State notes (greenbacks), which they 
purchase from the Treasury, they are in reality nothing 
else than branch-banks of the great Issue Ofiice of the 

The idea of a State Bank seems to have floated, per- 
haps not in a very distinct form, in the minds of the 
A STATE framers of the Act of 1844. And, beyond 
BANK. oil question, Sir Eobert Peel, adopting the 
views of Lord Overstone, was in favour of the estab- 
lishment of a single Bank of Issue for the whole 
country, — either in the form of a State bank, or of 
the Bank of England. A State bank would unques- 
tionably have certain advantages. Its notes, being 



receivable in payment of taxes, and being issued oi 
the security of Government, would be made a legal 
tender throughout the kingdom. They would furnish 
an adequate currency for the whole internal trade and 
domestic requirements of the country. And thus, in 
great emergencies and exceptional times, these State 
notes would supply an adequate currency for the 
country, even if, owing to an absence of gold, they 
were temporarily inconvertible. Nay more. By means 
of such a State currency, the precious metals, and the 
fluctuation inseparable from them, could be dissociated 
from the currency, and their value would be measured 
in it like that of all other commodities. With such 
a currency, in fact, gold and silver would be bought—, 
and sold just like corn or coal, iron or cotton. ™ 

Attractive as such a currency- system is, it is open 
to what we regard as a fatal objection. It is in the 
OBJECTIONS TO fo^m of a State-currency alone that the 
A STATE BANK, paper-mouey of a country can be depre- 
ciated. The note-issues of banks never cause the 
currency to become redundant. Indeed, if the rate 
of discount be maintained at the just level, it is 
doubtful if the measure of value can be depreciated 
by the note-issues of banks, even though cash- 
payments were suspended. The banks of a country 
have no motive to diminish their profits by un- 
duly lowering the rate of discount ; and if there 
be no undue lowering of the rate of discount, there 


can be no undue expansion of the currency. The 
trading and industrial classes will not pay for more 
discounts than they want ; and it is only by means 
of discount -operations and suchlike advances that 
a bank can get its notes into circulation. But with 
a Government the case is widely different. A 
Government expends many millions of money every 
year, and all these payments can be made in its 
own notes. Any amount of paper-money may thus 
be forced into circulation, whether there is a de- 
mand for it or not. It is true that a State bank 
may be conducted on perfectly sound principles ; but 
the temptation to do otherwise, in exceptional times, 
is very great. By issuing, in the form of Government 
expenditure, an excessive amount of pajDcr - money, 
the Government virtually raises a forced loan from 
the community, without becoming liable to repay- 
ment either of capital or interest. The depreciation of 
the currency which ensues is an index of the profit 
(the amount of the forced loan) obtained upon these 
issues by the Government. All great depreciations 
of paper-money have been occasioned by State-issues. 
The assignats of revolutionary France, the greenbacks 
of America, and the many other kinds of paper-money 
which have sustained a great depreciation, have all 
been State-issues. Such issues are conducted on a 
totally different principle from the note-issues of 
banks. They can be forced out whether the com- 



munity want them or not ; whereas bank-notes cannot 
be so forced out, nor, if got out, could they remain 
out. Banks will not issue their notes save upon 
ample security, and at a fair profit ; and the public, on 
their part, will not pay for borrowing money on such 
terms if they do not want it; nor will the notes re- 
main in circulation a day longer than they are needed, 
— neither will they circulate at all unless the public 
have confidence in the bank which issues them. 

A State bank, therefore, seems to us, of all others, 
the most dangerous source of a national currency. A 
community best knows its own wants, and a currency 
will always be regulated by those wants if it be sup- 
plied by banks, and if the State does not interfere by 
means of legislation. But a community has no such 
check upon a State bank, whose notes are issued in 
the form of Government expenditure. 

The same objections do not apply to the establish- 
ment of a single bank of issue. Such a bank has no 
motive to depreciate the currency, and, 

MONOPOLY OF ^ j 7 i 

A SINGLE BANK what Is morc, no power to do so — unless 
by unduly lowering the rate of discount, 
which no bank, if left in its natural condition, will 
be willing to do. The danger, in fact, lies in exactly 
the opposite direction. A State bank is apt to make 
money too cheap, — a single bank of issue is disposed 
to make it too dear. A restriction of note -issues to 
a single bank confers upon that bank a monopoly 


of the currency, and thereby enables it to raise the 
vahie of money at its pleasure. And the higher a 
bank can raise its rate of discount, the greater are 
its profits. This is especially true of an establish- 
ment like the Bank of England, which pays no in- 
terest on its deposits. With Scotch . banks, and in a 
lesser degree with the English joint-stock banks, a rise 
of the rate of discount is not pure gain, because they 
have in some measure to raise also the rate of interest 
which they pay on deposits. But, wea"k and utterly 
inadequate as this preventive to over-charges is, it is 
wholly inoperative as regards the Bank of England. 
Every rise in the Bank-rate is pure gain to that estab- 
lishment. And if it were made the sole bank of issue, 
the country would be subjected to a despotism which 
would be intolerable. Unlike a State bank, the Bank 
of England is conducted simply on the principle of 
making the largest possible profit on its money. A 
State bank, from self-interest, would give all due aid 
to trade and commerce; for by so doing it would 
increase the revenue, and also promote the welfare of 
the people. But the Bank of England has nothing 
to do with such considerations. It simply looks to 
its own interests. It has simply to consider by what 
means it can obtain the largest amount of profit. 
In this respect, to confer a monopoly of note-issues 
upon the Bank of England would be infinitely worse 
for the community than if the right of issue were 




confined to a State bank Trade and industry would 
be placed in permanent bondage ; and the moneyed 
interest, tbe Plutocracy, would be rendered om- 
nipotent. This would be the worst kind of "pro- 
tection," — it would be class -legislation in its most 
obnoxious form. It would be a greater violation 
of the freedom of trade, and a worse oppression of 
industry, than any which has figured in our Statute- 

Such, then, 'is the goal to which the Act of 1844 is 
gradually but surely conducting us. It is undesirable 
in two respects. Firstly, inasmuch as the 
operation of the Act will ere long produce 
a serious diminution of the currency. Se- 
condly, because it is gradually extending the mono- 
poly of the Bank of England. Let us consider these 
two results separately. 

Already one million and a half (£1,451,711) of the 
note-issues of our banks has lapsed, producing a dimi- 
nution of the available currency to the ex- 


OF THE tent of nearly a million. And even suppos- 


mg that all the Scotch and Irish banks of 
issue continue in existence, a steady decrease is cer- 
tain to occur in the English banks of issue. As we 
have shown, these banks are discontinuing business at 
the average rate of four every year. And as even 
the largest of them all, the National Provincial Bank 
of England, with an authorised issue of nearly half 


a million, is said to contemplate resigning its right 
of issue for tlie sake of being allowed to establish an 
office in London, we may safely infer that, unless the 
law be changed, all or nearly all of these banks will 
either drop business, or at least resign their right of 
issue. This would cause a further lapse of upwards 
of seven and a half millions of notes, which could be 
replaced by Bank of England notes only to the extent 
of two-thirds. In other words, in addition to £801,711 
of note-issues already lapsed, there would be a further 
lapse of £2,535,630 : making a reduction of the avail- 
able currency to the extent of nearly three and a half 
millions. Either this vacuum would remain unfilled, 
or else the Bank of England would require to keep 
three and a half millions more gold than at present 
to maintain the note-circulation of the country at its 
present amount. The effect of this is obvious. The 
amount of gold which the Bank Directors think suffi- 
cient would have to be raised, and the Bank-rate would 
be raised in proportion. Since the Directors at pre- 
sent think it necessary to charge 9 per cent for their 
discounts when there are thirteen millions of gold in 
the Bank, they would, when the above-mentioned lapse 
of notes is accomplished, charge the same rate when 
their stock of gold is upwards of sixteen millions. 
This is the state of things to which, under the Bank 
Act, we are advancing. A still larger amount of gold 
would be nullified in the Bank, — ten millions instead 



of six or seven : and a corresponding rise would take 
place in the Bank-rate, raising still further the rate 
of usage throughout the country. We do not believe 
that this result will take place, because we do not 
believe that the country will submit to it. But the 
result is sufficiently certain if the Bank Act be allowed 
to remain in operation. 

Secondly, along with this evil of a diminished 

currency, will come an extension of the monopoly 

of the Bank of England. As a lapse of 


THE bank's issues on the part of other banks occurs, 


it IS the Bank of England alone that is 
permitted, in part, to replace these issues. Thus 
the whole currency of England will by-and-by be 
in the hands of the Bank. Great as is the power of 
the Bank Court at present, it will become still more 
omnipotent as time rolls on. The other banks may 
discount as they please, but the Bank has a power to 
regulate their operations in this respect at its will. 
The currency is wholly in its hands ; and by con- 
tracting that substratum — that fundamental basis of 
credit, — it can compel the other banks to contract 
their operations in proportion. Or rather, as we have 
said, the other banks, feeling their helplessness, will 
be ready, as now, to co-operate with the Bank, and 
increase their profits by adopting its high rates. 
Already we see that every bank which allies itself 
with the interests of Trade ere long comes to grief, 


or has to reverse its policy, and imitate that of the 
Bank. It either breaks down, or, learning its help- 
lessness by bitter experience, chimes in with the 
Bank, — disregards the claims of Trade, and thinks 
only how to make money at the expense of the com- 
mercial classes by charging high rates of discount. 
The cause of the fall or embarrassment which succes- 
sively overtakes these banks is, that they think mainly 
of the legitimate requirements of their customers. 
They say, " Here is an excellent firm, carrying on a 
sound business ; it is a good customer, and we have 
no doubt as to its solvency, — therefore it is only right 
that we should assist it." But they forget that in so 
doing they are at the mercy of the Bank of England, 
and that a change in the value of money, owing to the 
action of the Bank, may at any time turn good busi- 
ness into bad. A rise of the Bank-rate, by depressing 
the markets, may bring ruin upon firms who have 
conducted their business alike with prudence and 
ability. Hence it is that all banks which endeavour to 
make common cause with the commercial classes, get 
into difficulties, and soon cease to struggle against the 
overwhelming power of the Bank of England. Its 
rates determine the fate of Trade. Its power is a des- 
potism against which it is in vain to struggle. If our 
leading joint-stock banks had a right to issue notes of 
their own, and were to use this power when occasion 
required, they would to some extent be independent 



of the Bank. They would have a means of lending 
their deposits — of making advances of their loanable 
capital — which at present they have not ; and thereby 
they could support solvent firms when temporarily 
embarrassed. Their action also would lessen at 
times the depression of the markets produced by the 
high rates of the Bank of England. But at present 
rivalry is vain. The other banks have to carry on 
their business with the Bank's notes: it is the only 
means they have of carrying on their business. They 
have a vast amount of loanable capital, it is true, but 
they have not, of themselves, the means of lending it. 
Hence it is vain for them to follow a different system 
from that pursued by the Bank. They must act as 
it acts, or suffer the consequences. Surely this is 
not a state of things to be desired. Monopoly is as 
evil a thing in banking as in any other business. 
Yet, if the Act of 1844 be maintained, we shall year 
by year see this despotism of the Bank rendered still 
more absolute. 

It has frequently been suggested that Bank of Eng- 
land notes should be made a legal tender in Scotland 
as well as in England. Such a proposal is objection- 
able, theoretically ; as a practical measure, it would 
fail to realise the object which its advocates desire to 
attain ; and also, in its character, it is essentially re- 
actionary. The principle of making the notes of any 
private bank a legal tender is an erroneous one. No 


paper-money should be made a legal tender unless it 
be issued by the State : and such State-issues we have 
no desire to see. The circulation of the notes of every 
bank of issue should be a voluntary act on the part of 
the community, or of the locality in which such banks 
exist. In this matter, however, as in all the others which 
we have discussed, we lay little stress upon abstract 
principles. The worship of theories is the idolatry of 
the young. The real question, when considering the 
merits of a system, is, how does it work ? We have 
no desire to see the State recall from the Bank of Eng- 
land the legislative privilege which makes its notes a 
legal tender in England. We think it was a mistake 
to give such a privilege to any private bank ; but the 
privilege has been enjoyed for thirty years, and there 
is no adequate motive for cancelling it. The notes of 
the Bank of England had been accepted as a valid ten- 
der by the community for generations before the privi- 
lege was conferred upon them ; and it would be un- 
advisable to affect their present prestige in any way 
by an act of legislation which is not indispensably 
called for. But to extend the operation of this State 
priAdlege in favour of the Bank's notes to Scotland is 
a very different affair. Such a proceeding would be 
most objectionable ; it would be directly at variance 
with the wishes of the Scotch ; and, moreover, it would 
not accomplish the object of those who advocate it. 
The practical object sought by those who desire to 




see Bank of England notes made a legal tender in 
Scotland, is to obviate the drain of gold upon the 
Bank, which occurs in times of monetary pressure, in 
consequence of the Scotch banks selling their securi- 
ties, and withdrawing the amount in coin from the 
Bank of England. No one can object to the Scotch 
banks adopting this course : they merely do as every 
individual in the community has a right to do. And, 
moreover, this is precisely the course which Sir Eobert 
Peel wished that all provincial banks should take 
when it became necessary for them to extend their cir- 
culation. He stated that whenever an English bank 
of issue required more money than the amount of the 
notes which it was permitted to issue, it should sell 
a portion of its securities, and thus obtain a supply 
of notes of the Bank of England. And to withdraw 
notes from the Bank has precisely the same effect, un- 
der the Act of 1844, as to withdraw an equal amount 
of gold. But the real point to be observed is this. The 
drain upon the Bank of England which the advocates 
of this proposal desire to obviate, is wholly occasioned 
by the Act of 1 845. Previous to the passing of that Act, 
there never was any drain upon the Bank of England 
to meet the requirements of Scotland. Neither would 
there be now, but for the Act. The cause of the drain 
is simply this. In periods of crisis or panic, the 
monetary requirements of the community are excep- 
tionally increased ; and as the Act of 1845 

forbids I 


the Scotch banks to issue additional notes unless they 
at the same time provide themselves with an equal 
amount of gold, they have no choice but to cash their 
securities and provide themselves with an extra stock 
of gold. If the Scotch banks were let alone, — ^if they 
were allowed to conduct their business in their own 
way, and simply with reference to the wants of the 
community, — there would be no such drain on the 
Bank of England. Let the Scotch banks issue their own 
notes, and that is all that is wanted. But as long as 
they are prohibited from extending their issues, except 
on the condition of providing themselves with an 
extra stock of gold, this drain upon the Bank of 
England is the necessary and natural consequence. 
The real remedy for this occasional withdrawal of 
gold from the Bank, therefore, is to annul the legis- 
lative enactment which is the cause of it. 

To make Bank of England notes a legal tender in 
Scotland, would be an extension of the vicious system 
of State interference and banking monopoly, of which 
the country has already had far too much. Alike the 
banks and the community of Scotland would have a 
right to complain, — and certainly would complain. 
They are quite content with their own notes and 
banking-system, and would strenuously, and we think 
most justly, oppose any attempt to subvert these 
by a further extension of the State privileges of the 
Bank of England. 



Moreover, in what way would the proposed innova- 
tion obviate a drain on the Bank of England in times 
of monetary pressure ? At present the Scotch banks 
have to provide themselves with an extra stock of 
gold, in order that they may issue an extra amount 
of their own notes, to meet the increased monetary 
requirements of the community. Under the proposed 
system, they must equally add to their stock of money, 
by obtaining a supply of Bank of England notes. Such 
a change would make no difference in the drain on the 
Bank of England. To withdraw notes from the Bank 
has precisely the same effect, under the Act of 1844, as 

to withdraw gold.* 

The same amount of gold would 

have to be kept in bank under the one system as 
under the other. The only difference is, that under 
the new system the gold would be in the Bank of 
England, — whereas, at present, it is kept (where it 
ought to be) in the Scotch banks. Accordingly, the 
Scotch would be well entitled to object to a change 
which would not only damage their own banks, and 
extend the vicious monopoly of the Bank of England, 
but which, as a measure of detail, would simply trans- 
fer from the Scotch banks a certain amount of gold, 
and place it in the keeping of the Bank of England. 

The riojht of a communitv to the free use of bank- 
notes is, or ought to be, undoubted. The recent 
violation of this right — the prohibition of such issues 
* See footnote to p. 239. 


by tlie Acts of 1844-5 — is an interference on the part 

of the State with a matter in which it has no concern. 

Bank-notes circulate by the free will of 


FREEDOM TO tlic community. They cannot be issued 

BANKING. . -11 

save m accordance with the wants oi the 
public. The State may refuse to receive these notes 
in payment of taxes and other dues: but it has no 
right to forbid their use among the people. Indeed, 
as we have said, no notes of any private bank ought 
to be made legal tender. Bank-notes should circulate 
simply by the free will of the community. The con- 
dition of their existence is a voluntary act on the part 
of the public. 

The right of the community in this matter should 

be restored. The freedom of banking which existed 

for a century and a half prior to the Bank 


FROM FREE- Act sliould bc re-cstablished. And it 
' would be re-established in a better form. 
Private banks of issue are things of the past. No new 
ones would be established, any more than private 
banks of any kind. In truth, few private banks would 
ever have existed but for the monopoly of the 
Bank of England, which for more than a century pre- 
vented the establishment of joint-stock banks. The 
system which grew up under the regime of freedom in 
Scotland is the one which would now be followed. If 
any joint-stock bank wishes to issue notes, let it do so. 
We do not know that any condition should be attached 



to that right. For its own sake, a bank may be tvm 
to secure its notes just as it secures its other Kabilities. 
Nevertheless, in the case of new banks, it might be en- 
acted that for all notes issued they shall keep an equal 
amount of Consols, valued at par. These notes, too, 
might be ear-marked, so to speak, — ^might be placed 
apart from the other assets, and kept for the note- 
holders. But, in truth, the banks would naturally take 
good means to meet the wishes of the public in this 
matter. Their only chance of success would lie in mak- 
ing their notes acceptable as a circulating medium. 
If they failed in that, their notes would not circulate. 
Therefore we are in favour of perfect freedom. The 
action of the community ought to regulate the matter. 
There would be no danger, under such a system, of 
the country being flooded with bank-notes. No over- 
issues have ever taken place in Scotland, where the 
right of issue was fully established for a century and 
a half. For a bank to make over-issues is simply 
to spoil its own trade. Every bank desires to lend 
its money upon the highest terms it can get. Who 
ever heard of a mercantile company selling its goods 
too cheap ? and why should it be otherwise with banks 
of issue ? Moreover, English banks now set compara- 
tively little value upon their note-issues.* These issues 
form but a very small portion of a bank's business ; 

* As iu England there are no notes of less value than £5, cheques 
in ordinary circumstances answer all the purposes of bank-notes. 


and it is only in exceptional times that there would be 
any call for an extension of them. But it is precisely 
at these times that such issues become of immense im- 
portance to the community. It is precisely because 
there is no means of meeting these exceptional cases, 
under the present system, that our disasters are so 
frequent. Let banks be free to issue notes when a 
demand for them arises. Our monetary system has 
been deprived of its natural elasticity. It can ex- 
pand, it is true, when nobody wants it to expand; 
but it also contracts at the very time when con- 
traction is fatal. It is no longer elastic, — it no 
longer answers to the demands made upon it; and 
in lieu thereof it is subjected to rigid expansions 
and contractions which have no more to do with the 
requirements of the public than with the changes of 
the moon. The wants of the community necessarily 
fluctuate at intervals ; but there is no provision to 
meet those fluctuations. On the contrary, the means 
of remedy which formerly existed have been taken 
away by Act of Parliament. Serious as the difficulty 
is in its consequences, it is purely artificial in its ori- 
gin. It is simply owing to a legislative enactment, 
which was passed under misapprehension, and the 
practical working of which has wholly falsified the 
intentions of its well-meaning framers. 

The period is approaching when the whole question 
of banking and currency will, doubtless, be discussed 



anew. And the great point to be desired is, that the 
HISTORICAL monetary system of the country be then 


freed from the influence of baseless theories 
and revised by the light of that best of teachers — 
practical experience. 

There were errors (of monopoly) in the monetary 
legislation of England previous to 1844; and since 
then there have been still greater legislative errors 
affecting the whole kingdom. Passing over the crisis 
in 1696, when the Bank of England was struggling 
with the difficulties natural to a new establishment, 
and when a too hasty calling in of the metallic money 
of the country for the purpose of re-coinage produced 
a crisis of a peculiar kind not likely to recur, — we 
find that the difficulties which arose under the old 
system were of three kinds. There was, first, the par- 
tial loss of faith in the Bank, which produced a run 
upon it in 1745, when both the dynasty and the form 
of Government were imperilled by the rebellion in 
favour of the House of Stuart. That crisis in the 
Bank's history was not due in any degree to the 
currency- system. Secondly, and posterior to that 
crisis, difficulties were occasionally experienced in 
consequence of the multiplication of private banks of 
issue, — some of which were improperly conducted, and 
many of which were deficient in the amount of capital 
requisite for safe banking. This defect was mainly, 
if not wholly, due to legislation. It was the neces- 


sary consequence of tlie monopoly conferred upon 
the Bank of England, which forbade the formation 
of joint-stock banks, such as (under the free system) 
were successfully established in Scotland. Thirdly, 
there was the mistaken policy of the Bank in reduc- 
ing its discounts and the amount of the currency 
at times when a drain of specie for export took place. 
This was the chief cause of the crises of 1793, 1795, 
and 1826. This contraction of discounts in 1793 and 
1795 was condemned even by the Bullion Committee 
of 1810 ; nevertheless, it was repeated in 1826 with 
the same results — namely, a general panic, and a run 
upon the Bank. We say, deliberately, that each and 
all of these three crises might have been obviated, or 
at least greatly lessened in severity, if the Bank had 
not adopted the mistaken policy of reducing its dis- 
counts and the amount of the currency. And each 
and all of these crises were at once terminated as 
soon as the Bank reversed its policy, and began to 
discount as before. 

Since 1844 new elements of difficulty have been 
imported into our currency-system. By nullifying 
nearly seven millions of gold, the Bank Act produces 
artificial crises, — crises which would not arise at all if 
the Bank had the use of these seven millions of specie ; 
and also, in consequence of the same arrangement, the 
rate of discount, and with it the rate of usage through- 
out the country, has been artificially enhanced. More- 




over, Tinder the Act of 1844, our measure of value has 
been vitiated, and now fluctuates to and fro in a manner 
that bafifles all calculation. And finally, the rights of 
the community have been violated by the prohibi- 
tion against the establishment of new banks of issue, 
— and by the monopoly thereby conferred upon exist- 
ing banks of issue, and especially upon the Bank of 
England, in whose favour this restrictive policy was 
purposely framed. 

Profiting by the lessons of experience, it is time tha 
our monetary system were now freed from the difficul- 
ties and defects which, whether under the 
old system or the new, have beset it. It is 
to be hoped that the Directors of the Bank of England, 
and of all our banks of issue, will now see clearly that 
to contract their discounts in a time of monetary difii- 
culty is the very way to aggravate the crisis and pro- 
duce a panic. If the facts which we have adduced on 
this point, in various parts of this volume, do not de- 
monstrate this truth, we know not what demonstration 
is. As to the rest, the country's difficulties arise wholly 
from legislation. The multiplication of private banks 
under the old system was owing to this cause; and 
the difficulties which arise under the new system from 
the inadequacy of our currency-system to meet tem- 
porary fluctuations in the requirements of the public, 
are likewise wholly due to legislative enactment. So 
also is the absurd nullification of nearly seven mil- 


lions of gold in the Bank of England. A dif&culty 
occasioned by legislation is of all others the most 
easily remedied. And it is time the remedy were 
applied. Our currency-system ought to be remo- 
delled in such a way as to remove the embargo 
on these seven millions, and restore the Bank of 
England to its full freedom. We must also restore to 
the community the right of freedom of issues, — ^but in 
a better form than under the old system ; namely, by 
allowing any joint-stock bank to issue its own notes, 
if the public desires to haVe them. Let freedom be 
the order of the day — in banking as in all the other 
departments of business. Leave the banks and the 
community free to act for themselves, and three- 
fourths of our present difficulties will at once be at 
an end. In banking, as in other matters, let us have 
done with monopoly, — let us have an end of legisla- 
lative interference and fetters. The community best 
knows its own wants. Let it act for itself. And 
then, rely upon it, it will soon find a remedy for the 
evils which, under a well-meant but most mistaken 
legislation, have of late years pressed upon the coun- 
try so heavily. 

We do not want " cheap " money any more than we 

want dear money. Our views may be summed up in 

a few words. We desire that there should 


be no waste of the national capital, and 
no artificial calamities inflicted upon trade by Act of 



Parliament. We desire that the loanable value of 
capital should be regulated by its normal causes — 
namely, the amount of the supply and the extent of 
the demand, — and not, as at present, by fluctuations 
in the instrument of exchange, which have been 
created by erroneous legislation. Finally, we desire 
that the national measure of value, in which all con-i 
tracts are made, should be preserved. We maintain' 
that the State has no right, by means of legislation 
and of the monopoly which it has conferred upon one 
great bank of issue, to subject the measure of value to^i 
variations amounting at times to one -third or one- 
fourth, — variations which periodically rob industry 
of its legitimate profits, which subject commerce to 
"tremendous sacrifices," and which throw thousands 
and tens of thousands of our working-classes out of 
employment. ^^1 

We object to the nullification of seven millions of" 
gold in the Bank of England, because it is not only an 
uncalled-for waste of capital, but, still more, because, 
owing to our currency-laws, it is a means of arti- 
ficially enhancing the rate of usage throughout the 
country. And we object to the prohibition against 
banks issuing their own notes, as a violation of com- 
mercial and industrial freedom, — as an interference 
with the legitimate rights alike of the banks and oi 
the community. We object to the existing legislation 
as a whole, because it establishes a system of mono- 



poly vicious in principle and injurious in its working. 
And we object also to that legislation in its details, 
which have been so erroneously framed that they inflict 
upon the community evils which the framers of the 
Bank Act never contemplated, and which might to a 
great extent have been avoided, even though the evil 
principle of monopoly were maintained. 

England is at present the opprobrium of the world 
in the matter of monetary convulsions. Our country 
TRADE IN suffers greater and more frequent disasters 
BONDAGE, from this cause than any other. We suffer 
more than America, — reckless and impetuous as is 
the temper of the people there. We suffer more than 
all Europe put together. England is the peculiar seat 
of monetary crises : and we have told the reason why. 
As ingenious as the Boy's own Book, which shows 
how to make artificial earthquakes and volcanoes 
by burying a fulminating mixture which in due 
time explodes — our legislators have imparted to our 
currency a volcanic organism, the alternate expan- 
sions and contractions of which periodically shake 
down our fabric of Trade and strew the country with 
ruins. Surely it is time to mend this. Again and 
again have the commercial . classes been subjected to 
" tremendous sacrifices" by the working of the present 
system. Again and again has Trade been prostrated, 
paralysed ; and again and again have the working- 
classes, owing to this cause, been deprived of their 



means of support, — ^have been willing to work, and 
yet could get no work. Thousands, whose only capital 
is their labour — whose only wealth is in the work of 
their hands — suffer during those artificial monetary 
crises as much, in proportion, as the wealthy merchant 
who has cargoes on every sea. And at this moment 
— as if the evil of the cotton-dearth were not enough 
— our great seats of industry are paralysed anew. As 
we now write, there is many a fireless home, and many 
a starving family, in Lancashire, simply because seven 
millions of gold lie useless in the Bank of England, 
and because our whole banking system is cramped by 
a policy of monopoly and restriction.* England, which 

* In consequence of the depression of the cotton-market, caused by 
the rise in the Bank-rate, upwards of a hundred manufacturers, em- 
ploying more than 20,000 operatives, have already been forced to 
suspend payment. And this represents only a small portion of the 
increased distress which prevails in the manufacturing districts ; 
because many of the employers who remain solvent have closed 
their mills, or put their workpeople upon short time. At present 
(Nov. 8) the number of cotton-operatives out of work is nearly 
twice as great as it was at the end of July (when the rise of the 
Bank-rate began), and the number of operatives upon short time 
has more than doubled. The following table shows the niimber of 
operatives on short time, and out of work, in the last week of each 
month, — and also the changes of the Bank-rate : — 

Short time. 

Out of Work. 

Bank-rate raised to 

July, 67,660 


7 per cent on July 25 

August, 59,074 


8 „ Aug. 4 

September, 102,047 


9 ,, Sept. 8 

October, 125,296 



Thus, during the three months in which the Bank-rate has beei 


boasts of her freedom of trade, and of free popular 
action in all matters — which boasts that she is a self- 
governing country, in which Industry thrives un- 
shackled by legislation — nevertheless has thrown over 

raised from 6 to 9 per cent, about a hundred manufacturers have 
been forced to suspend, — 65,000 operatives have been placed upon 
short time, — and 70,000 more have been thrown entirely out of 
work. Nearly the whole of this increase of the Lancashire distress 
has taken place during the last two months, when the Bank-rate 
has stood at the minimum of 9 per cent. 

The operation of the Bank-rate in producing this lamentable 
increase of distress in the manufacturing districts is shown by the 
following comparison of the prices of cotton in the second week of 
August with those at the beginning of the present month. "We take 
the prices from the Commercial List given in the Economist of 
Aug. 13 and Nov. 5 : — 

Aug. 13. 

Nov. 5. 


Sea Island, 



7 per cent. 









New Orleans, 




Egj^tian, . 




West Indian, 



24^ „ 




3H „ 




43^ „ 

As is generally known, the price of " middling Orleans " regu- 
lates the cotton-market ; and hence the fall of prices (as shown in 
the table) between the middle of August and the beginning of No- 
vember has been 23 per cent. And this is a minimum estimate. 
So that every cotton importer or manufacturer, besides having to 
jjay 9 per cent, of discount on his bills, has seen his stock of goods 
reduced in value to the extent of nearly one-fourth. It is estimated 
that the stock of cotton goods has in this way been reduced in value 
to the amount of £8,000,000. And as long as the Bank-rate is main- 
tained at 9 per cent, the depreciation will coutmue to increase, and 
with it the number of bankruptcies, and of operatives thrown out 
of employment. 



all that trade, over every branch of her manifoh 
industry, the meshes of a golden net, which envelops 
and fetters, and periodically strangles the industrious 
classes, robbing Labour of its wages and Commerce of 
its profits. 

Trade has been set free in each separate branch; 
but over it all there has been established a virtual 
COMPLETE Despotism — a monopoly which weighs 
FREE TRADE. -Qpon aud fcttcrs every part of the national 
industry, and which at times confiscates its gains to 
an extent which no autocrat would venture upon. 
Who is the Minister who will undo these fetters? 
"Which of our statesmen will complete the work of 
Free-trade, by annulling the artificial restrictions and 
the injurious monopoly which weigh upon our na- 
tional industry as a whole ? It is a great work that 
has yet to be done, — but it is a simple one, and 
one also which would entail no loss upon the State. 
All that is needed is to abolish legislative restrictions 
which ought never to have been imposed. All that 
is needed is to leave to the community freedom of 
action in this matter as in others. When a community 
is left free to act for itself, the Government at least is 
no longer chargeable with responsibility. But in the 
present case, it is the very legislation of the Govern- 
ment that has done the mischief. All that is needed 
is to annul that legislation, and leave the community 
to attend to its own interests. 


We trust, then, that the time is not distant when 
some one of our leading statesmen will take in hand 
this great but simple w^ork, — will undo the legislation 
which produces a waste of the national capital, which 
vitiates our measure of value, which perpetuates a 
system of restriction and monopoly, and which ever 
and anon sacrifices Trade and impoverishes the work- 
ing-classes. All that is to be desired is, that such a 
statesman should act in the spirit of the late Sir 
Eobert Peel, and seek to ensure, as far as legislation 
can, to Labour its wages, and to Commerce its legiti- 
mate profits. 

2 a 


When Croesus made a display of all his treasures and 
good fortune to Solon, the Athenian sage is said to 
have hastened his departure from the Lydian Court, 
feeling assured that such great and uninterrupted pros- 
perity would ere long be overtaken by disaster. If 
Solon, or some other ancient Greek, were amongst us 
at present, he would probably experience a similar 
foreboding.* The gods, in old times, were thought to 
be jealous of the unbroken prosperity of mortals ; and 
it was regarded as a tempting of the gods when men 
thus happily circumstanced openly boasted of their 
good fortune. England is not only remarkably pros- 
perous, but we all boast loudly of our prosperity. 
The Ministers of the Crown lead the jubilant chorus 
of self-congratulation. Doubtless they are desirous 
to make us forget the political humiliation to which 
England has been subjected under their rule, by extol- 

* This exposition of the state of our Trade was written in Sep- 
tember, and it appears unadvisable to alter the text of it, as the 
subsequent changes have been alluded to in the preceding chapter. 


ling in an unusual manner ^ur material prosperity. 
But the jubilant spirit has become infectious; and 
amid the lull of politics, and the stillness of the Par- 
liamentary recess, the only voices which catch the ear 
are those which are uplifted in praise and admiration 
of the wonderful increase of our trade and commerce. 

As we listen, in our study, to this apotheosis of 
Trade, our tight little island seems to rise into the shape 
and proportions of a magnificent Temple, thronged with 
busy crowds swarming out and in, — making ample use 
of the sanctuary, but seldom even touching their hat, 
as they pass, to the golden statue of the goddess For- 
tuna which stands in the midst. There they are cease- 
lessly storing up the wealth that flows to them from 
the rest of the world. Men in strange climes, and in 
strange dresses, and speaking all manner of tongues, 
are seen preparing produce and luxuries of all kinds 
for the Temple, which flow thither in long streams 
across both land and sea. And still the work of stor- 
ing goes on : gold, silver, and all precious things, the 
delights of life, the cream of the earth's good things, 
accumulate higher and higher in the chambers of the 
temple. And ever and anon, as the recorders announce 
the increasing tale, there rises a great shout from the 
busy throng, which sounds in our ears like that which 
St Paul heard of old when the people cried out with 
one voice, "Great is Diana of the Ephesians, whom the 
world worshippeth 1" 



It is a remarkable position wliicli England occupies 
in the world. A little spot amidst the northern seas 
ITS INFLUENCE ^l^i^ost invislblc to the schoolboy as he 
ON THE WORLD, g^eks for it on his globe, and which inad- 
vertently he may hide with his finger-point as he turns 
round the coloured sphere, the British Isles are never- 
theless the heart of tlie world, the centre to which the 
thoughts and acts of men most generally tend, and to 
and from which the streams of material life are ever 
flowing. If we draw on a map the great lines of com- 
merce, we will see what a large proportion of them 
converge to our shores. It was once a proverb that 
" all roads lead to Eome ; " and England, commercially, 
now holds in the world at large the same predomi- 
nant position which the Eternal City held in the lesser 
area of the Eoman empire. Our country is the chief 
goal of the highways of commerce. Caravans, with 
their long strings of laden camels and horses, are 
ceaselessly crossing the plains and deserts of Asia, — 
railway-trains, drawn by the rapid fire-car, rush across 
Europe and America with their freight of goods, — and 
ships in thousands bring to us from all parts of the 
world the staple supplies of our food and industry. 

The sun never sets on the dominions of England : 
in one part or other of the globe his rays still shine 
on the red-cross banner of St George. But is not Eng- 
land herself a sun — diff'using civilisation, while adding 
to the material comforts of mankind ? She furnishes 


employment to tens of millions of people in the utter- 
most parts of the earth. The Chinaman in his tea- 
plantations and mulberry-gardens — the Hindoo in his 
rice and cotton fields — the poor Indian miner on the 
Andes — the Gaucho as he follows his herds on the 
Pampas, — even the Negro of Africa, and the native of 
the far and fair islands of the Pacific — are stirred to 
industry and kept in comfort by the employment 
which we in our little island give to them. If — as 
has been in the aeons of the Past — ^the British Isles 
were to sink slowly until they were submerged beneath 
the surrounding seas, their disappearance would be 
like the setting of a sun, and the world of commerce 
would suffer an eclipse. Why, then, should we not 
boast of our Trade, seeing that it not only increases 
our wealth, but confers benefits on mankind at large ? 
True, commerce does not always appear as a bene- 
factor. With equal indifference we send forth the 
clothing which preserves, and the arms which destroy, 
life. We not only give employment, but we occasion 
and facilitate wars. Our skill is as conspicuous in the 
manufacture of the enginery of war as in the fabrics 
and machinery of peace. True, also, we fight for 
markets. If a people will not accept the blessings of 
trade, we force them upon them at the point of the 
bayonet, or at the mouth of the cannon. This is in- 
defensible, — it is a reproach to civilisation; but it is 
natural. There is no unmixed good — but evil itself 



is made to develop good. The action of self-interest 
has been made by Providence the regulating force of 
human progress; and self-interest — low motive as it 
may seem to those who fancy they could have made 
the world better than its Maker has done — when 
rightly understood, through experience of life, ever 
propels us in the end towards the good. '^1 

The first result of the contact of civilisation with 
barbarism is uniformly war. Yet slowly and surely 
Peace is winning her triumphs. Broader and broader 
expands the area of commerce — wider and wider 
extends civilisation, — and more and more prevail the 
doctrines of peace and the principle of international 
brotherhood. The Ely si an time, the golden age of the 
world, when there shall be universal peace, is too far 
off to be discernible at the present day. Wars pro- 
bably will never cease out of the earth. Like the 
poor, they will be always with us. Nevertheless they 
will grow fewer and milder. The heart of the world 
will rest at peace, and wars will only fringe its borders 
— in the outlying countries not yet brought within the 
pale. And in effecting this happy change, the influ- 
ence of commerce — the operations of self-interest — 
will accomplish more than all the moralising of sages 
or the preachings of philanthropy. Have we not felt, 
during this present year, how firmly the golden meshes 
of trade have wound themselves round the heart of the 
nation ? Unfelt, unnoticed, in ordinary times, it is 


only when England raises lier right arm in anger to 
strike that she becomes sensible of the golden meshes 
that have slowly encircled her. We are bound over to 
peace by chains which are not unpleasant to us. This, 
too, may have its bad side, — but that is a question 
beyond our subject. Let it suffice that other nations 
also, our neighbours and rivals, are gradually coming 
into the same golden bondage, and that the more potent 
that bondage becomes, the less need will there be for 
" a policeman" in Europe. 

We send forth the material comforts of civilisation, 
and we rouse to industry and give employment to 
millions of human beings who would otherwise stag- 
nate or starve. But, more valuable than all the rest, 
we export men also — our own countrymen. Led by 
the potent agency of self-interest, they invade the 
solitudes and attack the barbarism of the world, — 
peopling with a higher race the waste places, and, as 
conquerors or masters, leading the natives of other 
countries into a higher life than they could have 
reached of themselves. A new race has repeopled 
America, — a new population has grown up in Aus- 
tralia, — as lords of India, we are rejuvenating the effete 
world of the East, — a kindred destiny awaits the 
gigantic empire of China, — and soon Egypt, Syria, Asia 
Minor, and the African shores of the Mediterranean 
will likewise come under European tutelage. 

Where commerce goes, influence follows. And the 



commerce of England is gradually overspreading thi 
world. It widens and pours along like a rising flood, 
— whose outer edges indeed are gross with sand, and 
whose waves as they advance sweep away much and 
devastate not a little, but which nevertheless enrich 
the soil and produce new and better forms of fertility, 
making the world more beautiful and man more happy. 
In the old theology of Persia, the disciples of the Good 
Spirit, Ormuzd, were bound to wage ceaseless war with 
the works of the evil Ahriman, — not only by crusading 
against alien religions, but by warring against all that 
obstructs the beauty and fertility of the earth. To 
keep clear and pure the water-courses, to plant fruit- 
trees, to extirpate weeds, to extend cultivation — these 
were parts of that old religion, and were regarded as 
not the least worthy service which man could render 
to his Maker. We no longer call such acts religion : 
yet is it not a carrying out the beneficent work of Pro- 
vidence in the world, — a work which is left to human 
hands to accomplish — which must be done by man or 
not at all ? And thus Trade has a religion of a very 
practical kind — invisible in and unfelt by her votaries, 
yet appearing in the result of their labours, and 
aiding most powerfully the onward progress of the 

We are pre-eminently a trading nation, and the dry 
figures of the Board of Trade returns are the index of 
our commercial prosperity. They are the most pal- 


pable sign of our material greatness. Like the Nilo- 
meter which has stood for ages in Egypt, recording 
ouRNiLo- upon its column the height of the annual 
ETER. inundation which regulates the prosperity 
of the land of Misraim, these returns show the ebb and 
flow of trade which regulate the profits of our mer- 
chants and the employment of our people. As the 
Nile on each overflow deposits a new layer of allu- 
vium, increasing the soil, the parent of future crops, — 
so each annual rise of our commerce brings a deposit 
of profits, an addition to the capital and productive 
power of the country. The ebbs shown in the returns 
mark the bad years, while the increase is a sure sign 
of contemporaneous comfort and prosperity. Happily 
the ebbs are but occasional, while the increase in the 
main is steady and astonishingly great. It is marvellous 
to mark the increase of British commerce in recent 
times, especially from the epoch when the discovery 
of the gold-mines of California and Australia began 
to add new and immense supplies to the metallic 
currency of the world. We desire to eschew tables 
of figures, but in this case we make an exception. 
The subjoined column represents the Mlometer of the 
British Isles, and records upon its face the steady 
rise, with occasional ebbs, of the stream of trade 
which annually enriches our country. The exports 
and imports are given in round numbers, and the 
figures represent millions sterling : — 





Our Nilometer 

















































































This year our exports are likely to amount to 160 
millions sterling, and our imports to 270. Between 
1839 and 1849 our trade increased rather more than 
25 per cent ; but in the next ten years, aided by the 

* Previous to 1854, tlie official returns are of no use as show- 
ing tlie real value of our Imports ; for the scale of prices by 
which the official value was determined was fixed so far back as 
1698, and has long ceased to represent the true value of the 
articles. But the official value serves to show the fluctuations in 
quantity. And as for several years after 1854, both the "official " 
and the "real" value of the Imports was published, we are 


gold-discoveries, it increased 100 per cent. During 
the last twenty-five years our trade has trebled in 
amount, — the exports having risen from 52 millions 
to 160 millions, and our imports from 86 millions to 
about 270. 

The increase of our national wealth arises in the 
main from three different sources. It arises (1) from 
ouB SOURCES ^^ increase in the produce of our soil and 
OF WEALTH, q^j, locks {i.e., grain, animals, weaving ma- 
terials, and fruits, and of coal, iron, and other metals), 
or from a diminution in the cost of production thereof ; 
(2) from an increase in the amount of foreign goods 
which we manufacture and export, or in a diminished 
cost in the manufacture of them ; and (3) from a pro- 
fitable investment of our spare capital in the construc- 
tion of railways and suchlike enterprises abroad. 

The Economist reckons that our annual savings 
amount to £130,000,000, and the lowest computation 
is £100,000,000. The contribution made to the in- 
come of the country by the profits on our foreign 
trade are rapidly on the increase. It is true, the re- 
turns of our export trade do not indicate with accu- 
racy the amount of profits arising from it. There may 

enabled to observe the difference between these (the real value 
being about 2-7ths greater than the official) ; and by applying this 
ratio to the returns for the fourteen years previous to 1854, we have 
presented (in the prefixed table) our Imports for these years at their 
real value — or at least an approximation to it sufficiently correct 
for our purpose. 



be over-production, causing a glut in the foreign mar- 
kets, and consequently a fall of prices, and less profit 
to our exporting merchants. Such was the case in^i 
1860, — although by good-luck, it was quickly righted 
by the dearth of cotton goods that followed. It is 
also to be noted, that during the last two and a half 
years, the profits of our exporting manufacturers have 
not been in the same proportion to the value of goods^i 
exported as formerly. The great increase in the cost^' 
of the raw materials must be taken into account. It 
is only upon the manufacture of these materials that 
we derive a profit ; and as the declared value of our 
exports includes the cost of the raw material, as well 
as the cost and profit of manufacture, it is obvious™ 
that when the raw material rises in price, the propor- 
tion of our profits to the total value of the goods ex- 
ported becomes reduced. Cotton is now fourfold the 
price it was in 1860 ; so that, although the value of^i 
exported cotton goods last year was only 10 per cent 
less than in 1860, the diminution in the profits of our 
manufacturers must greatly exceed this proportion. 
The quantity of the goods exported is a better criterion 
of the profits of our manufacturers than the value of 
the goods, — the value being largely affected by fluc- 
tuations in the cost of the raw material. It is the 
quantity of their manufacture (in other words, the 
amount of work which they get to do) that chiefly 
regulates the profits of the millowners ; and, we need 


hardly say, it is likewise the quantity of our manu- 
factures which indicates the amount of employment 
furnished to our people. Although the value of cotton 
exports this year promises even to exceed that of 
1860, neither the profits of our manufacturers, nor 
the amount of employment for our operatives, will 
be nearly so great as they were four years ago. 

Let us analyse the Board of Trade returns, and show 
in detail of what our traffic with foreign countries 

The Imports are what we buy, — the Exports are 

what we sell. Of our Imports last year, two-fifths 

(103 millions) consisted of materials for 


our manufactures : of which amount fully 
one-half consisted of cotton, and rather less than one- 
half of wool, silk, flax, and hemp, hides, oil and tal- 
low, metals, indigo, and saltpetre. The other great 
branch of our imports consists of food and stimulants, 
or luxuries, for the subsistence of our people, and 
forms nearly one-third (75 millions) of our whole im- 
ports. Of this amount one-half consists of the neces- 
saries of life, — grain and flour, bacon, butter, cheese, 
and rice ; the other half of what may be called luxu- 
ries, — sugar, tea, coffee, wine and spirits, tobacco, and 
fruit. The remaining portion of our imports consists 
of wood, for house and ship building and furniture, 
manufactured articles of dress, &c. We import twice 
as much cotton as corn, and twice as much corn as wool. 




Next as to Exports. Of the goods which we sol 
to other countries last year, fully two -thirds (100 
millions) consisted of articles manufac- 
tured by us out of foreign materials, — the 
cotton goods alone amounting in value to 47J mil- 
lions ; and less than one-third of materials of our own 
production (raw or manufactured), chiefly metals and 
coal. Cotton goods form the largest portion of our 
exports, and next to them metals and metal goods, — 
the former constituting one-third, and the latter one- 
fourth, of the whole of our exports. We export twice 
as much cotton as woollen goods, and twice as much 
woollen as linen. The total value of the metals and 
metal goods exported last year was 33 millions ; but 
we cannot claim all this as the produce of our own 
mines, seeing that we imported four millions' worth 
of metals (chiefly copper) from other countries. ^j 

As we import about ninety millions' worth of cot^ 
ton, wool, silk, flax, hemp, and hides, while we only 
OUR CON- export articles manufactured from these ma- 
suMPTioN. terials to an equal value, — and as the value 
of the manufactured article may (even with the pre- 
sent high prices of the raw material) be stated at 
almost double that of the raw material, — we may 
infer that nearly one-half of these textile imports are 
employed for our own use — consumed in the manu- 
facture of clothing for our own people. If this be 
correct, about 40 millions' worth of the textile fabrics 




imported are required by us for clothing. Thus, in 
addition to the produce of our own country, we im- 
port 75 millions' worth of food, and 40 millions' 
worth of the raw materials of clothing ; besides nearly 
20 millions' worth of other goods, consisting of arti- 
cles of dress and for household use, and wood for 
building and furniture. In all, 135 millions' worth 
of foreign goods are consumed by us annually, simply 
in maintaining our present highly comfortable exist- 

The two largest items in our imports — namely, 
cotton and corn — are also the most variable, alike as 

* The following is a list of the chief articles imported and 
exported by this coantry in 1863, arranged under descriptive 
heads : — 


For Food- 

For Manufactures 


Corn & Flour, £26,000,000 

Cotton, . £57,300,000 

Bacon, Butter, 

Wool, . 




Silk, . 


Rice, . 


Flax and Hemp, 


Sugar, . 


Metals, . 


Tea, . 


Hides, . 


CofTee, . 


Indigo, . 


Wine, . 


Oil and Tallow 







Seeds, Flax and 

Fruit, . 


Linseed, . 


For Household 



Saltpetre, . 



■tnn o«TA nnn 

Oil and Tallc 


. £4,000,000 

For the Farm — 

Paper, . 
Articles ofDres 


8 — 


Guano, . 
Oilseed Cake, 



Ribbons, «Src., 


o ooA nnn 

For Building a 

nd Furniture— 

Wood, . 



Articles not included, £ 

47,474,942. Total, 





regards quantity and price. The variations of tlie on" 
are due to natural, and of the other to political causes. 
The state of the weather, the favourable or 
unfavourable nature of the season, deter- 
mines whether our harvest is a good or bad one; 
and the difference in value between a very good 
and a very bad harvest is at least twenty millions 
sterling. In other words, in a very bad year we 
have to buy of our neighbours twenty millions more 
corn than when our harvest is decidedly good. This 
makes an enormous difference in the national bal- 
ance-sheet. The outlay of the farmer is the same in 
a bad year as in a good one : the expenses of cultiva- 
tion are a fixed charge, but the return depends on the 
skies and the weather. A very fine summer is worth 
twenty millions in hard cash to this country, besides 
the many other less direct benefits which it brings. 



Manufactured frorr 

I Foreign Material — 

Of our own Materials — ^^^| 

Cotton Goods of 

Metals, Cutlery, 


all kinds, £47,400,000 

Machinery, &c. 

,£25,000,000 ^B 

Woollen do., 



3,700,000 M 

Linen do.. 



1,334,000 fl 

Metals (say), 



867,000 m 




750,000 ■ 

Apparel & Slops 



250,000 ■ 

Silk do., 



1,776,000 ■ 

Leather do., 



454,000 jl 

Jute do., 


Stationery & Paper, 900,000 j| 

Hats, . 



457,000 m 

Furniture, . 



550,000 ^ 



*^6 f>?9 0(\n 

••^^^~—^-~—— OU, VOOjVW 

Sugar, refined, 






Articles not included, £ 

10,461,768. Total, 


COTTON. 385 

Father Sol is a very potent deity, whose favours we 
cannot afford to slight. His rays are a veritable shower 
of gold. He is fickle, it is true, though not quite so 
fickle as of yore ; and we may hope for some slight 
improvement still, when by draining and planting or 
clearing we have rendered our Isles a more pleasant 
spot for him to look upon. Of late years the variations 
in the amount of corn imported have been unusually 
great. In 1859 the amount imported was not quite 
£18,000,000 ; in the two following years it rose to 31 J 
and 34f millions ; in 1862 to 37| millions — more than 
double what it was in '59 ; last year it was £26,000,000, 
and this year it promises to be as much.* 

The variations in the import of cotton during the 

same years have been still more remarkable. Indeed 

the changes connected with the late cotton- 

OOTTON. n 1 • 1 • J 

crisis are the most astounding of their kind 
that could well be imagined, A civil war in America 
suddenly sealed up the region from which we derived 
five-sixths of our supply of cotton; by far the most 
important branch of our manufacturing industry was 
smitten with paralysis ; a large portion of the cloth- 

* The great increase which has taken place of late years in our 
dependence upon foreign countries for corn, is shown by the fol- 
lowing facts given in a recent Parliamentary return of our imports 
of grain, flour, and meal, for the last twenty-three years. In the 
ten years 1841-50, the quantity averaged 5,810,470 quarters a-year ; 
in the ten years 1851-60, 9,629,425 quarters ; since then it has been 
larger than was ever known before — namely, in 1861, 16,094,914 quar- 
ters; in 1862,18,441,791 quarters; and in 1863, 15,352,559 quarters. 




ing of mankind became suddenly very scarce anc 
dear ; and a great alteration took place in the chan- 
nels of commerce. The old cotton-fields being blocked 
up, new areas of cultivation were opened. Instead of 
drawing our supplies from, and sending our money 
to, the West, we have been drawing our cotton from, 
and sending our money to, the East. India, Egypt, 
and Turkey are now fertilised by the golden stream 
which previously poured into the United States. 

We need not speak of the manner in which the 
great calamity of the cotton famine has been borne by 
THE COTTON ^^^^ couutry. We need not describe the 

DEARTH, admirable patience of the suffering opera- 
tives, nor the magnificent charity displayed by the 
nation at large on their behalf. But it may truly be 
said that the manner in which the calamity has been 
met and surmounted has astonished even ourselves. 
A branch of industry which employs half-a-million of 
operatives, and whose products constitute one-third of 
our export trade,* was suddenly paralysed ; yet the 
general prosperity of the country hardly experienced 
a check, and already our export trade is rushing ahead 
again at its former rate of increase. Let any one study 

* Mr Arnold, in his History of the Cotton Famine, states tliat 
in 1860, the annus mirahilis of the cotton-trade, there were 2650 
factories, worked by about 440,000 operatives, whose wages 
amounted to £11,500,000 a-year. And the capital invested in 
this branch of our manufacturing industry was £65,000,000. 
This amount, of course, is exclusive of the capital of the cotton- 
merchants who trade in the raw material. 



the following brief statistics of our cotton trade during 
the last four years, and he will discern how vast have 
been the changes produced by the blockade of the 
American ports : — 

Imported. 1860. 1861. 1862. 1863. 

Quantity, . . cwts., 12,419,096 11,223,078 4,678,333 6,973,422 
Price, £35,756,889 £38,453,398 £31,093,045 £56,277,953 

From United States, £30,069,306 £26,570,399 £1,221,277 £644,138 
From other countries, 5,687,583 12,082,999 29,871,768 55,633,815 

The startling change in the channels of commerce is 
here visible at a glance. In 1860, the United States 
sent us five-sixths of our supply of cotton, and now 
they send us next to none — only one-sixtieth of their 
former amount. On the other hand, the rest of the 
world has increased its rate of supply tenfold, — sending 
us 65 J millions' worth of cotton, in place of the 5^ 
which it sent in 1860. Another change which is 
strikingly shown in the above figures is that of price. 
Although the quantity of cotton imported fell from 
12J- million cwts. in 1860 to only 4J in 1862, the 
price which we paid for cotton in the latter year was 
almost as great as in the former. And last year, al- 
though the quantity imported was less than one-half 
what we imported in 1860, we paid upwards of one- 
half more for it ! * So enormous has been the increase 

* If we compare the present prices with those in 1859 (the year 
before the exceptional period of the cotton-trade began), we find 
the following results. First, as regards the raw material. In 1859 
the average price of "middling Orleans" was 7d, per lb. — this year 
the average has been 28d. per lb. ; or four times greater than before 



in the price of cotton, caused by the dearth on the one 
hand, and on the other by the general prosperity of 
the nations, which seems* to admit of their buying 
cotton clothing freely, even at unusually high prices. 

Peculiar circumstances connected with the late cot- 
ton crisis have sufficed greatly to moderate its bad 
effects. In 1860 and beginning of '61, the Southern 
States, seeing a blockade approaching, hurried out 
every bale of cotton which they had on hand ; this 
enormous amount was as speedily worked up by our 
manufacturers ; and the consequence was, that a great 
glut ensued in the markets of the world.-f* In ordi- 

the outbreak of the civil war in America. And as regards "fair 
Dhollerah," the price per pound has similarly increased — namely 
from 5.|d. to 2Hd. Secondly, as regards the manufactured article, 
since 1859, the price of "40's mule-yarn" has risen from 12|^ to 
33d. — or more than 2^ times the price before the exceptional 
period began. And " 8 lb. 4 oz. shirting " has increased from 9s. 7d. 
to 21s. 2d. — i. e., nearly 2^ times. As the cost of manufacture re- 
mains the same as before, the change in price is occasioned simply 
by the rise in the price of the raw material. And on this account 
the rise in the price of the finer kinds of manufactvired goods is 
less than in the coarser kinds, — and in both of these is less than 
in the raw material. 

* We say " seems," because the Eastern markets are still heavy ; 
and although the old cheap stocks of 1860-61 have been cleared off, 
it is doubtful how far the new and dear stocks will be taken into 
general consumption. 

f The exports of cotton goods from this coimtry during the last 
seven years have been, in round numbers, as follows : — 
















nary circumstances this glut would have produced a 
severe crisis in our cotton-trade, and extensive faihires 
would certainly have occurred. But, as events turned 
out, the over-production of 1860 proved a fortunate 
thing for our manufacturers ; for a considerable portion 
of the goods manufactured at low prices in that year, 
afterwards sold at very high prices in 1862-63. 

The cotton-trade is still in a transition state, and 
fresh changes will assuredly take place whenever 
peace is re-established in the United States. But these 
changes will be on the side of plenty ; and, however 
injurious they may perhaps be to India and the other 
cotton-fields recently opened, they cannot fail to be 
highly advantageous to this country. This at least 
ought to be the result. But any great fall in the 
value of the^ raw material, if it take place suddenly,* 
must have an injurious effect upon merchants or 
manufacturers who have laid in a large stock at the 
present high prices. Moreover, it behoves our manu- 
facturers to bear in mind that a comparatively small 
amount of production when prices are at their present 
exorbitant height will produce a glut as certainly os a 
much larger production will do in ordinary times. An 

* We have no doubt that, whenever the civil war in America 
comes to an end, a customs-duty will be imposed upon the ex- 
port of cotton, — which may be so high as to yield a large return to 
the American Government, and yet allow of the Southern States 
being again, what they used to be, the cheapest market from which 
we can supply ourselves with cotton. 




amount of production which may be healthy when 
prices are low, becomes excessive if carried on when 
prices are high. In 1860-61 the glut was caused by 
cotton goods being too plentiful ; but, let it be remem- 
bered, a similar glut may be produced simply from the 
goods being too dear. In 1860-61, the quantity of 
goods manufactured was greater than people required, 
— now, we fear, the price of the goods is greater 
than our customers at large can afford to pay. 

Let us now see the kind of produce which ead 
country sends us, and the commodities which each 
takes from us. China sends raw silk and 
tea; India sends cotton, indigo, and rice. 
We get our spices from the Philippine Islands, and 
almost all our coffee from Ceylon. We get a portion 
of our cotton from Egypt ; hides chiefly from the Pam- 
pas of Buenos Ayres ; wool chiefly from Australia and 
the Cape ; wood from the northern countries of Ame- 
rica and Europe ; flax and tallow from Eussia ; corn 
chiefly from the United States and Eussia ; and the 
precious metals from Australia, California, Mexico, 
and the Andes of Peru. Of our exports, we send beer 
to India and Australia ; coal to many places to supply 
coaling-stations for steam- vessels, but chiefly to France. 
We send cotton-yarn for manufacture to India, Hol- 
land, and Germany ; and cotton piece-goods to India 
and China, Turkey, Egypt, the United States, and 
Brazil. Our hardwares and cutlery go chiefly to Aus- 


tralia, India, and the United States ; and our woollen 
and worsted goods to the United States, India and 
China, Germany, British North America, and Austra- 
lia. The material of war — cannon, rifles, and gun- 
powder — we send to any country which, unhappily 
for itself, may stand in need of them. 

As the amount of our imports shows, we are good 
customers to the world at large. Having seen the kind 
of goods which each country takes from or sends to us, 
let us indicate the countries with which the greatest 
amount of our trade is carried on. Of the 249 millions' 
worth of goods which we imported last year, 84 J came 
from our own possessions (i. e., our colonies and India) 
— from France, 24, — United States, 19 J, — Egypt, 16 J, 
— Germany, 13 J, — China, 13, — Kussia, 12 J millions. 
Thus our own possessions send us fully one-third of 
our imports; France, the United States, Egypt, Ger- 
many, and China, send rather more than another 
third ; and of the remaining 77 J millions, Eussia and 
Holland send us fully 27 per cent. Arabia and 
Persia figure lowest in the list. In 1862, Persia sent 
us £5 worth of goods, — Arabia nothing; in 1863 
Arabia sent us £2 worth of goods, and Persia no- 
thing. Japan sends a million. 

The same countries which sell to us the greatest 
amount of goods are also (though not quite in the 
same order) those which buy from us the most. Of 
the 146 millions of our exports last year, our own pos- 



sessions purchased 51 millions' worth, — the United 
States, 15, — Germany, 13 J, — France, 8f, — Turkey (ex- 
clusive of Egypt), nearly 7, — and Holland, 6 J. Arabia 
and Persia again figure lowest in the list; in some 
years taking nothing at all, in others a thousand 
pounds or so, — less than the amount of goods sent to 
our consuls and embassy. These two countries, doubt- 
less, take very little from us ; but the infinitesimal 
appearance which they make in the Board of Trade 
returns is greatly owing to their want of good and 
accessible seaports, in consequence of which the goods 
which they take from us are conveyed to them over- 
land, and figure in the imports of other countries. 

Our own possessions, it will be seen, are as good 
customers to us in the buying as in the selling. They 

take from us fully one-third of our exports ; 

the United States, Germany, France, Turkey, 
and Holland take another third; and the remaining 
third is taken in various proportions by the other 
countries of the world. These facts bring out in a 
very clear light the importance to us of our colonies 
and possessions. The whole cost of our colonies to 
the British exchequer is barely three and a quarter 
millions sterling, — of which sum about a million is 
absorbed by our military stations of Malta and Gib- 
raltar ; while India costs us nothing at all, and more- 
over furnishes a profitable sphere of action for our 
adventurous youth, who in due time bring home with 





them their gains. India at present buys annually 20 
millions' worth of goods from us, and Australia 12 J. 

We are the great carriers of the world. Thirty 
thousand ships sailing under the flag, or bearing the 
OUR SHIPS cargoes of England, says Mr Cobden, are 
AT SEA. gygj. Qjj ^YiQ seas, going and coming from 
all parts of the globe. The once solitary and unnavi- 
gated surface of ocean is now whitened with the sails 
and tossed by the paddles of countless vessels. 'Not 
promiscuously do these white-winged ships dot the 
expanse of ocean, but following and crossing and 
meeting one another on regular highways, which men 
have found, not made, on the deep. "We make roads 
with vast labour on land, — we find them made for us 
at sea, in the great currents which wind through the 
deep, and in the steady-blowing gales which traverse in 
similar fashion the realms of air. From the Thames, 
the Mersey, the Tyne, the Humber, and the Clyde, 
argosies and commercial armadas are ever leaving, 
and jostle in our estuaries with similar squadrons 
making to port.* The shores of these estuaries, lined 
with miles of docks and building-yards, ring with the 
clang of hammers ; and vast ribs of wood and iron, 

* The amount of the export trade from the twelve chief ports 
of the United Kingdom in 1862 was as follows: — Liverpool, 
£50,297,135; London, £31,523,812; Hull, £11,916,375; Glasgow 
and Greenock, £6,096,228; Southampton, £3,379,503; Newcastle, 
£1,968,118; Leith, £1,298,099; Bristol, £298,260 ; Cork, £132,130; 
Dublin, £48,777 ; Belfast, £4188. 



curving upwards from still vaster keels, show wliere 
leviatlian vessels are being got ready for their adven- 
turous career. As we watch the launch of these 
vessels, — still more as we see them setting off, with 
full-spread sails or smoking funnels, for all parts of 
the world — to China or the Cape, to the St Lawrence 
or La Plata, to the North Sea or the Mexican Gulf, or 
to double the wintry promontory of Cape Horn on 
their way to the guano islands of Peru or the golden 
shores of California, — we think of icebergs and sunken 
reefs, of typhoons and tornadoes, as well as of fair 
winds and sunny seas. All the year round, a cease- 
less stream of ocean-traf&c is flowing to and from our 
shores. Last year 90,310 vessels with cargoes entered 
or left our ports, carrying on the foreign trade of the 
country.* Of this shipping, British and colonial 
vessels exceeded the foreign in number by one-fourth, 
and in tonnage (our ships being a half larger) by 
nearly two to one. 

In regard to the amount of British shipping, we 
find accurate information in the official register. In 
the home trade,f employed on our coasts in convey- 
ing goods and passengers from port to port, we have 

* This statement shows clearly the vast amount of shipping 
employed in our trade ; but it is not a guide to the number of 
separate ships employed — seeing that many of them make double 
or treble voyages, and are entered anew each time. 

t The "home trade" includes our own coasts, together with the 
ports between Brest and the mouth of the Elbe. 


11,000 sailing-vessels, averaging 75 tons burden each, 
and employing 40,000 men ; besides 450 steam-ves- 
sels, averaging 240 tons burden each, and employing 
7000 men. Engaged partly in home and partly in 
foreign trade, we have 1500 sailing-vessels, averaging 
160 tons each, and employing 10,000 men; besides 
90 steamers, averaging 330 tons burden, and employ- 
ing 1700 men. In the purely foreign trade, we have 
upwards of 7000 sailing-vessels, averaging 430 tons 
each, and employing 100,000 men ; also upwards of 
500 steam-ships, of the average burden of 645 tons, 
and employing 20,000 men. Thus, in our home and 
foreign trade, taken together, we have fully 20,000 
ships, with a tonnage of 4J millions, and employing 
175,000 men. Both classes of our ships, both steamers 
and sailing-vessels, are regularly increasing in num- 
bers, but much the greater ratio of increase is in the 
number of steamers. In both kinds of vessels, too, there 
is a steady increase in size. Comparing the present 
amount of our shipping with what it was in 1850, we 
iind that we have eleven per cent more ships, forty- 
four per cent more tonnage, and fifteen per cent more 
men. Moreover, a great economy has of late been 
effected in the working of the vessels. Since 1850, 
there has been a reduction of one-fifth in the number of 
men required for a certain amount of tonnage ; so that 
our 175,000 seamen now work an amount of shipping 
which in 1850 would have required 220,000 men. 



The last feature of our trade whicTi remains to be 
noticed is the traffic in the precious metals. It is a 
THE PRECIOUS curlous, aud at first sight a puzzling one. 

METALS. j^ ^g gQ^ Q^ least, to those who fancy that 
the receipt or export of the precious metals is an 
indication of a country's gains or losses. Gold and 
silver in large quantities are constantly pouring into 
this country, and flying off again. The native coun- 
tries of the precious metals — Australia, Mexico, and 
California (through the United States) — send us a large 
portion of their annual produce ; and we send it off' 
again, chiefly to Turkey, Egypt, and India. There is 
also a constant flux and reflux of the precious metals 
between England and the other countries of I^urope, 
especially between this country and France. During 
the last five years we received 18 millions of gold 
and silver from Erance, and we sent thither nearly 40 
millions. But of the balance of 22 millions thus 
apparently acquired by Erance, a considerable portion 
simply took its way through that country, via Mar- 
seilles, to the East. No less than 140J millions ster- 
ling of the precious metals were imported into Eng- 
land during the last five years, and 138 millions were 
exported ; so that of the enormous quantity which 
we received, only two and a half millions remained 
with us. 

How was this ? What became of the 138 millions of 
gold and silver which no sooner reached our shores than 



they went off again ? We made the best possible use 
MOVEMENTS of tMs bullion. We sent it abroad, chiefly 
OF BULLIo^. ^Q purchase materials for our industry ; 
and the goods manufactured from those materials we 
in turn sent abroad, selling them to other countries. 
Thus we send away our gold in order that we may make 
a profit on the materials which the gold purchases. It 
is a fair exchange. The foreign country gets the 
value of its goods in gold, and we get the value of 
our gold in goods. But these goods, by being manu- 
factured and re-exported, not only give employment 
to our people, but enable us to make a profit which 
we could not do by keeping the gold. 

There are some countries which export more goods 
and less bullion than they import ; and there is 
another class of countries which regularly export less 
goods and more bullion than they import. India is 
an example of the one class, — the gold and silver 
producing countries, Australia, California, and Mexico, 
of the other. The goods which we get from the 
former are taken from us by the latter ; the buUion 
which we get from the latter is taken from us by the 
former. Each exports what it best can spare ; and, 
dealing with both, we pay the one by sending to it 
the produce of the other. 

A drain of gold from any country may be occasioned 
simply by a change in the channels of trade. For 
example, as long as we drew our cotton supplies from 




the United States, gold was hardly needed in the 
trade, because the United States took from 
us goods of equal value ; whereas now, when 
we get our cotton from India, Egypt, and 
other countries which take less goods from us than 
we buy from them, we have to pay away a very large 
amount of bullion every year. Yet there is not a loss 
in the one case any more than in the other. The 
influx or efflux of bullion is no sign of a country's 
gain or loss. Australia is constantly sending away 
her gold, and is growing rich by the process. Her 
whole prosperity depends on her parting with the 
gold : it would be the worst evil that could befall her 
if she were compelled to keep it. As we have said, 
the annual savings of the United Kingdom are reck- 
oned at the astounding sum of £130,000,000. What 
is there in the flow of bullion to show for this ? 
In one year our national wealth increases by a sum 
which is nearly equal to the whole amount of the 
precious metals which came to our shores during the 
last five years ; yet of that amount all that remained 
with us was only two millions and a half, — only equal 
to the amount of the gold and silver which in a single 
year we consume in ornaments and the arts. 

If the import and accumulation of the precious 
metals were a test of national progress in wealth, then 
India should be making greater gains every year 
than England and all Europe put together. But the 



ebb and flow of the precious metals is no indication 
whatever of the amount of a nation's gains or losses. 
It is an event which indicates nothing but itself, — 
namely, that payments in bullion are being made : 
and nothing can be predicated therefrom as to the 
relative condition of the sender or receiver. 

An influx of bullion may be equally a sign of gain 
or a sign of indebtedness. Suppose the Government 
of any country — say Eussia — raises a foreign loan of 
ten or twenty milions ; then to that extent, or nearly 
so, the precious metals are drawn from other countries 
and poured into Eussia. Is that any sign that Eussia 
is increasing in wealth, or that the balance of trade is 
in her favour ? No, ceitainly : it is a sign of neither 
of these things. The indebtedness of Eussia is only 
increased thereby. Or again, — of the immense sav- 
ings which we make annually, suppose our capitalists 
resolve to devote ten or twenty millions to the con- 
struction of railways or suchlilvc enterprises in foreign 
countries, which will yield a good profit. Thereupon 
the precious metals leave our shores in great quantity ; 
but are we losers thereby ? Would the money be sent 
abroad if it were not to get larger profits than the 
senders can get at home ? — and does not the annual 
interest, or dividends, on the sums thus invested 
abroad come back to us regularly, to increase the 
profits or income of our people ? 

Finally, the coming and going of the precious 



metals may be a sign neither of gain nor of loss^om 
simply of the amount of trade which a 

THE USE OP ^ '^ 

BULLION IN country is carrying on. The precious 
metals pass through this country as 
through a sieve ; and the immense quantities that 
thus come and go are simply one of the consequences 
of our extensive trade. To a large extent our mer- 
chants act as intermediaries between countries which 
have little commercial relation with one another. For 
example, Australian and Mexican merchants order 
goods from China or India, between which countries 
and their own there is little or no direct trade, and 
consequently no bills of exchange in which payment 
can be made ; moreover, gold is not money in China, 
neither is it yet a legal tender in India. There- 
fore these Australian or Mexican merchants give the 
China or Indian exporters bills upon some well-known 
firm in London, and send bullion to London to meet 
these biUs when due. The exporters on their part at 
once get these bills discounted at their banks in Cal- 
cutta or Shanghai, where the amount is placed to theii* 
credit ; and the bills themselves are sent by post to 
London to the parties on whom they are drawn, and 
who thereupon have to make payment. Now, as these 
bills on London are always in excess of our bills on 
India and China, the balance has to be sent out from 
this country in the precious metals : and thus the 
bullion which comes to us from the gold and silver 



producing countries for tlie most part simply rests 
here as at an entrepot, and is quickly sent off to the 
East. Only, the gold must first be exchanged for 
silver in Europe, — since it is silver only that is current 
money in India and China. 

It is only in making such payments that the precious 
metals are of any use to trade. Their use is to effect 
purchases or payments which cannot be accomplished 
by the ordinary means of bills of exchange. In such 
cases only are the precious metals needed. Indeed, the 
use of the precious metals is even more restricted than 
this. When there is a want of bills of exchange, 
goods may be sent abroad instead of bills or of gold. 
These goods are then sold in the foreign market, 
and with the proceeds the English merchant pays 
his foreign creditor, without a single sovereign having 
left this country. Instead of sending specie from this 
country he buys it abroad with goods, — paying his 
creditor out of the stock of specie held in the creditor's 
own country. Any merchant can get these precious 
metals, whether for export or import, in the same 
way as he gets cotton or iron. He may order gold 
from Australia just as he orders cotton from India. 
Or, with less trouble, he can buy bills on any place 
he likes, and order the proceeds of the bills to be 
sent home to him in specie : and he will only have 
to pay freightage on this specie in the same manner 
as he pays it on other commodities. So much ela- 




borate nonsense is talked on this subject and on 
''the exchanges" that one is apt to think that the 
precious metals ought to be styled the " mysterious || 
metals." Yet there is no mystery either in their 
influence or their movements. They can be dealt iii^| 
like other commodities, — bought and sold in the same 
way as sugar, soap, or tea. 1 

Gold is sent abroad only when it suits the interests 
of the sender to do so. Hence, to place restrictions'! 
on the export of gold, is simply to compel traders 
to send goods at a bad bargain when they could send 
gold at a good one. It is an antiquated system, in- 
compatible with the liberty of trade. For example, 
in November last, the Bank refused to discount the 
bills of cotton-merchants simply because the pro- 
ceeds of those bills were meant to be sent abroad 
in the shape of specie. Lancashire was idle for want 
of cotton. The most important branch of our na- 
tional industry, next to the cultivation of the land, 
had been for two years almost at a standstill for 
want of the raw material ; an immense national sub- 
scription had been requisite to keep half a million of 
our working-classes from absolute starvation. Cotton 
means employment for these suffering myriads. It 
means also profits for the master-manufacturers. To 
obtain a supply of cotton, therefore, has become a 
matter of great importance, even in a national point 
of view ; yet our monetary system creates obstacles to 


our obtaining it. For the last twelve months the 
Bank of England has regarded the importers of cotton 
as its peculiar enemies. "In November last it re- 
fused discounts to purchasers of cotton, not because 
their bills were doubtful, but because of the dread of 
a drain of gold."* The Bank thus checks the im- 
ports of cotton, and thereby prevents the revival of 
our cotton-trade, and the employment of our manu- 
facturing population. 

In fact, to talk of "free trade" under our present 
monetary system, is a mockery. Instead of being 
" free," trade is restricted alike in whole and in every 
part, and to an extent far greater than could be ef- 
fected by customs-duties. In antiquated times, it was 
thought that a country's prosperity depended upon its 
exports being greater than its imports, — because it was 
imagined that an accumulation of specie was the only 
proof of an increase of national wealth. This theory 
is now scouted in every quarter. In fact the principle 
is now reversed. " Take care of the imports, and the 
exports wiU take care of themselves," is now recognised 
as the true principle of legislation as regards Trade. 
But it is wholly neutralised by the adoption of the 
very opposite principle in our monetary legislation. 
The Bank Act revived the old, and we should have 
thought, antiquated system, and seeks to restrict the 
import of goods, in order that specie may be sent 
* Banker's Magazine, Feb. 1863, p. 92. 



hitlier instead. Under our recent legislation, the coun- 
try has gone back two hundred years. While the 
legislation as regards Trade has been wondrously im- 
proved and almost perfected, our monetary legislation 
has become retrograde. While freedom and full liberty 
of expansion have been given to Trade, monopoly and 
restriction have imposed new fetters upon Banking. 
It is like tying the living face to face with the dead. 
It is like placing a growing child within an ever-con- 
tracting cradle. What can be expected of such a sys- 
tem but misery and disaster ? What can follow from 
so discordant a union but a constant antagonism of 
interests between active and ever-expanding Trade and 
the soulless despotism of Money which keeps it in 
fetters ? 

The statistics of our trade which have now been 

passed in review, exhibit in a startling manner our 

dependence upon other countries. We are 


DENCE FOR dependent upon them to a large extent alike 
for food, for clothing, and for employment. 
Our dependence for clothing may seem a small mat- 
ter, though it is not ; but our dependence for food and 
employment is unquestionably a very serious affair. 
If Mr Caird is right in estimating the consumption of 
our people at 20 million quarters of wheat, then, 
during the last three years (when the annual importa- 
tion of corn and flour has averaged 16 million quarters) 
twenty-four millions of our population — four-fifths of 



the nation — have been dependent for grain-food upon 
foreign countries ! Even taking the most favourable 
estimate that can be formed, it appears, on the aver- 
age of years, that fully one-third of our population is 
dependent upon grain-supplies from abroad,* — and our 
dependence in this respect is yearly increasing. This 

* As, unfortunately, there are no agricultural returns for England 
and Scotland, a reasonable conjecture is the only approximation to 
correctness which can be made in estimating the amount of wheat 
consumed by our people. Twenty years ago it was assumed that, 
on an average, one quarter of wheat was consumed per head, — 
which would give a total consumption of 30 million quarters. Mr 
Caird estimates our consumption of wheat at only two-thirds of that 
amount, — namely, at 20 million quarters. The truth may lie be- 
tween these different estimates. There can be no doubt that wheaten 
bread is more in use by the lower classes than it formerly was ; 
the consumption of wheat in manufactures in the form of starch 
must likewise have largely increased (individual manufacturers in 
Manchester are known to use 5000 quarters of wheat per annum) : 
and looking to these facts, as well as to the enormous quantity of 
wheat now annually imported into this country, we cannot but 
think that Mr Caird's estimate of the consumption of wheat is too low. 
Mr Caird's estimate of the amount of wheat produced in this 
country also appears to us too low. It appears from the returns 
obtained by the Highland and Agricultural Society that in 1856-7 
the extent of land under wheat in Scotland amounted, on the aver- 
age of these two years, to 243,240 acres, — yielding an average pro- 
duce of rather more than 27 bushels to the acre. If we take this 
rate of produce as an average for the whole kingdom, and also 
accept the common (but purely conjectural) estimate that there are 
(or used to be) 5 million acres under wheat in the kingdom, it 
would follow that the total produce of wheat in the country is 17 
million quarters, — instead of 12, as estimated by Mr Caird. 

But both in Scotland and in Ireland the acreage under wheat 
is steadily decreasing, owing to the present unremunerative price 
of wheat, which compels farmers to devote more of their fields to 
grass and turnips, for the purpose of rearing sheep and cattle, 



is irrespective of the nine millions' worth of animal 
food which we import, and two millions' worth of rice, 
— necessaries of life. And, over and above, there are 
thirty- six millions' worth of sugar, tea, coffee, wines, 
&c., — which were luxuries in former times, but which 
have now become part of the ordinary diet of the people. 
Next, as to our dependence upon other countries for 
Employment. We annually import about 120 millions' 
FOB EM- worth of materials, the working up of which, 
PLOYMENT. ^^ factories and other workshops, gives em- 
ployment to probably a million and a half of operatives, 
many of whom have families dependent on them. 
This is a startling picture, but it has two sides. In 
one aspect, it is the greatest eulogy which could be 
pronounced upon our enterprise and greatness. Our 
little islands no longer suffice for us. Our energies 
have far overpassed their limits. There is room for 
us to live and work here, — that is all. These Islands 
are our house and garden, but our farm is detached. 
Or rather, we have no farm of our own, but draw our 
supplies from the farms of all our neighbours. We live 
upon the world. We have made so much money by 

which pay better. The same cause (namely, the present unremune- 
rative price of grain) is also leading to an increased culture of flax : 
a result which is being accelerated by the cotton-dearth and the 
great rise in the price of all textile materials. The growth of flax 
is extending in Ireland, and is also being introduced to an import- 
ant extent into England. This autumn the traveller by the Great 
Northern Railway could see many large fields of flax standing in 
sheaves, where no such sight was to be -wdtnessed in former years. 



generations of industry, and we employ our capital so 
well in trade and in profitable investments abroad, 
that we can command supplies of what we want from 
all parts of the world. On the other hand, what 
would be the consequences of a blockade ? "Would it 
not wither us up at once, as if the national life had 
been smitten by paralysis ? Would not our greatness 
fare like Jonah's gourd, which perished in a night by 
the gnawing of a little worm ? 

We say these things not in alarm or despondency. 

But it is well that a consideration of these things should 

incite us to renewed zeal in projects which 


are at present too little regarded. England, 
if she preserve her greatness, must always be depen- 
dent upon other countries ; and, so far as regards trade 
and employment, that dependence must continue to 
increase. But at least let us strive to lessen our de- 
pendence upon foreign countries for food. Large tracts 
of ground, now lying waste, may yet be cultivated. 
Even between London and Southampton, in the finest 
part of England, there are wide expanses of level 
moorland, such as in the lowlands of Scotland would 
quickly be brought into profitable cultivation. The 
waste of sewage, which is a disgrace to our civilisa- 
tion, will ere long, we trust, give place to an economy 
which will work wonders, and make many a blade of 
corn grow where none ever grew before. The steam- 
plough, also, will do something, — partly by lessening the 



cost of working the soil, but still more by workin^i 
deeper than is possible with horses. Finally, we ought 
to take measures to stock all our rivers and lakes 
amply with fish. A very large portion of the food of 
China consists of fresh-water fish, — yet in this coun- 
try it is as rare as if it were a costly luxury, and by 
millions of our people is not tasted once in the year. 
Let us hope, then, that the future — among the other 
good things it may have in store — will see the sewage 
of our great towns, instead of being wasted in poison- 
ing our rivers, applied in fertilising streams to the soil, 
— the steam-plough in general use, — our level waste- 
lands reclaimed, — our lakes and rivers amply stocked 
with fish, — and the luxury of oyster-beds plentifully 
established on our coasts. We might even with ad- 
vantage enact a " close time" for our coasts as well 
as for our rivers, — the destruction of female mackerel 
and herring while in roe being a most wasteful prac- 
tice. Such measures are called for by the necessities 
of our position. They are urgently needed to lessen, or 
at least to arrest the progress of, our perilous dependence 
upon other countries for food, — a dependence which 
every year is increasing, and which, if the proper mea- 
sures be not taken, must continue to increase with the 
spread of luxury and the growth of the population. 

These are considerations for the Government and for 
the general community. All that our trading classes 
have to think of is to extend their operations, and 


to do SO in as profitable a manner as they can. But 
THE CITY they have apprehensions of their own — 
IN TROUBLE. -pQ^Hg which primarily affect themselves, al- 
though the whole community ultimately suffers along 
with them. The present year has been commercially 
prosperous almost beyond example : yet shadows, as if 
of coming calamity, have ever and anon flitted across 
the sunny scene, and ever and anon our commercial 
classes have been filled with forebodings. The City of 
Gold has been troubled. In Tennysonian phrase, " its 
dreams are bad." The ease with which evil reports 
find currency is symptomatic of the prevailing ner- 
vousness. Only a week or two ago — in the beginning 
of September — just before the Bank-rate was raised to 
9 per cent, there was a panic on '"Change. The failure 
of several extensive firms was said to be impending, 
and the money-market was seriously affected. The 
panic which occurred serves to show that the trading 
community is by no means at its ease. Nor can it 
be so when the Bank-rate is rising, and threatens to 
cause a depression of the markets. Evil which all 
men expect, says the proverb, never comes, — all men 
being on the alert to prevent it. Let us hope that 
such will be the issue in the present case. But at 
the same time let us see what are the dangers to 
which our trade is exposed. 

It is a common saying, in some quarters, that the 
commercial classes in this country go mad every ten 



years. The great crisis of 1826 was followed by tl 
minor crises of 1837 and '39 ; these by the crisis of 
PERIODICAL 1847; and that in turn by the grand crash 
INSANITY. j^ 1857. Periodical insanity is alleged 
to be the cause of these calamities. An ever-recurr- 
ing mania for over-trading is believed to seize upon the 
commercial classes, and hurry them into ruin. This 
is a very bold assumption. A theory which supposes 
insanity on the part of the shrewdest and most prac- 
tical portion of the community certainly lacks, a priori, 
the air of probability. That, to the parties who hold 
this theory, our commercial classes seem to perform acts 
of insanity periodically, may be true ; but does not the 
appearance of insanity arise from the acts being viewed 
through a wrong medium ? Suppose a person, walk- 
ing up and down in front of our windows, always 
as he passed a particular pane of glass appeared to 
be grimacing ; would it not be sane on our part, be- 
fore questioning his sanity, to look whether there were 
not a flaw in the glass which made him appear to 
be grimacing, when in truth he was walking as soberly 
as usual ? The first question, then, which naturally 
suggests itself is, — Is it the fact that the commercial 
classes of the United Kingdom do actually, and in a 
manner suicidal for themselves, go mad every ten 
years ? Or is there not something, in the circumstances 
of the country, which at certain periods gives to their 
operations a semblance of recklessness, when in reality 


they have no such character ? Before charging the 
whole commercial and manufacturing classes with fits 
of insanity in over-trading, it is right to ascertain 
whether there be not some element in the case which 
their libellers have overlooked, and a consideration of 
which may place the matter in a different light. 

"Over-trading" is a charge of recent date. The 
crisis of 1857 was the first occasion on which it was 
OVER- heard. Previous to that time, another cry had 

TRADING, "been in vogue to account for the recurrence 
of commercial crises. They were attributed to " over- 
issues." That was the current theory from the begin- 
ning of the century down to 1844. Even in 1847 the 
old cry was heard in certain quarters, and the Bank 
was blamed for not having " contracted its issues " — 
i.e., reduced the amount of its notes in circulation. 
But that was the last of it. The theory would not 
hold water, and it was abandoned. Facts were too 
strong for it, and it was exploded. 

It came to be seen that the importance which had 
been attached to fluctuations in the amount of the 
Bank's circulation was groundless. The old cry was 
abandoned before 1857, and no one dreamt of reviv- 
ing it when the great monetary crisis of that year 
occurred. But if the Bank Act had rendered our 
monetary system perfect, what explanation was to be 
given of this new calamity ? Then it was that the 
theory of " over- trading " was propounded ; and it 



became as current as the cry of " over-issues " used to 
be. The old cry has been given up, — has the new 
one any better basis of support ? It does not matter 
with what parties the cry originated — we need not 
speculate whether it was the result of an honest be- 
lief, or whether it was adopted as a convenient means 
of shielding from scrutiny our present monetary sys- 
tem. All that we have to concern ourselves with is, 
— Is it true ? 

What has been may, and, if not guarded against, 
will occur again. If over-trading were the cause of 
the terrible calamity of 1857, the more fully the fact 
is investigated and exposed the better. If it were not, 
then the sooner we disabuse ourselves of the idea, the 
sooner we shall be in a position to discover the real 
cause of our commercial disasters. We must get off 
the wrong scent before we can find the right one. The 
question is of momentous importance to the welfare 
of our trade, and should be put beyond the influence 
of haphazard conjectures. In so matter-of-fact a 
department as trade and commerce, it behoves one to 
eschew mere assertions and vague generalities. In 
commercial matters, above all things, let us have pre- 
cision. Now, if over-trading were the cause of the 
disasters of 1857, what was the amount of it, and 
when did it begin ? In the summer of that year — as 
/ every one will remember who gives attention to com- 
mercial matters — all parties were agreed as to the 


soundness and prosperous condition of our trade ; and 
not a whisper was heard of credit being overstrained 
to support it. Not only the mercantile classes, but 
our most cool and observant economists, held and 
expressed this opinion. How was it, then, that the 
trade which was not felt to be excessive in the summer, 
broke down so suddenly at the end of autumn ? How 
was it that the credit-system of the country, which 
supported that trade buoyantly and prosperously in 
July and August, proved utterly unable to sustain it in 
November ? Manifestly, in that short interval, there 
must have been a great change : either Trade must 
have experienced a great expansion, or Credit must 
have become grievously enfeebled. Which of these 
things was it which happened ? In the altered rela- 
tions between Trade and Credit, which caused trading 
to become or appear over-trading, was it on the side of 
Trade or on the side of Credit that the alteration took 
place ? In the brief period that intervened between 
the height of our prosperity and the depth of our 
adversity, was it Trade that extended itself, or Credit 
that became crippled ? 

The storm came upon us from America : but when 

it was seen raging on the other side of the Atlantic, 

the iournals which are the most observant 


OF TRADE critics of commercial affairs — the Times and 
Economist — were unhesitating in their as- 
sertions that a similar disaster would not extend to this 



country, so firm and healthy was the condition of our 
trade. So late as the 7th November, after several large 
failures had occurred — including the exceptionally bad 
ones of Macdonald and Monteith in Glasgow, — the 
Economist continued to reiterate unhesitatingly its tes- 
timony to the sound and prosperous character of British 
trade. "That this country is intrinsically better off, as 
regards its obligations and financial position," it said, 
"than any other, there can be no doubt." In another 
editorial article in the same number upon our Imports, 
it was remarked, that " one of the great sources of loss 
which have attended former periods of commercial pres- 
sure, has been the large accumulation of foreign pro- 
ducts in our warehouses, — the consequence of extensive 
and improvident importations, stimulated by high 
prices, and the necessary reaction which took place at 
such times ; " but that " this cannot be said, at the pre- 
sent time, of any of the chief raw materials, if we ex- 
cept the single one of silk." Again, in a leader upon 
our Exports, in the same number, the editor put and 
answered the following decisive questions : — " Is there 
any evidence that the export-trade of this country 
during the last year has been of a forced character ? 
Has there been any glut in the home market, either of 
raw materials or of manufactured goods, which could 
have led to such a trade ? Has there not, on the con- 
trary, been a great scarcity of raw materials and a con- 
tinually rising price, caused by an extending demand ? 


The mere fact that failures have taken place in the 
United States, which have led to heavy losses in this 
country, in no way affects the general argument, — un- 
less it can be shown that those failures have been caused 
by losses directly resulting from the imports from this 
country. No such proof exists. On the contrary," &c. 
And in the same article, as if the real soundness of our 
trade could not be too often or too explicitly stated, it 
was said : — " Unlike the crisis of 1847, we have in the 
present year, in common with all Europe and the United 
States, instead of scarcity and famine, one of the most 
abundant harvests ever known ; and, unlike the crisis 
of 1847, when we had obligations to the extent of 
more than £150,000,000 in the shape of railway-calls 
impending over the country, our commercial classes 
are now more free from such demands upon their 
resources than they have been for many years." 

These are weighty statements. Here is a writer — a 
recognised authority — carefully considering the whole 
subject, and speaking with all the official returns and 
private trade-circulars before him. Here is a man who, 
in the presence of a great danger, anxiously scans all 
parts of our position, to see if there be any weak 
points, and can find none. Again and again the Times 
expressed a similar opinion. For example, on the 9th 
October, when the Bank began to raise the rate of 
discount, the leading journal in its City article remark- 
ed : " As regards the broad trade of the empire, it is 



impossible to discern the cause of fear. Month by 
month our commercial payments increase in magnitude, 
and yet are met with a punctuality never surpassed. 
All the leading bankers will testify, that thus far there 
is an absence even of those premonitory symptoms 
which invariably warn them of the possibility of a 
coming struggle, long before the community at large 
have become awakened to it. Hence the belief may 
be confidently indulged that, although with our uni- 
versally diffused transactions we must necessarily 
participate in every shock that occurs elsewhere, our 
commercial prosperity is destined still to continue a 
marvel to the world." fljl 

The Times and Economist were right in these state- 
ments as to the soundness of our trade. What, then, 
WHAT CAUSED causcd thclr anticipations to be so lament- 
THE CRISIS ? ably falsified by the issue ? Instead of re- 
maining "a marvel to the world," what caused our trade 
to break down utterly, covering the country with wrecks 
and misery? The Times and Economist erred in their 
calculations because they looked simply to the state of 
Trade, and overlooked the effect which the American 
panic would produce upon our Monetary System. It 
was the failure of the latter which occasioned the failure 
of the former. The cause of the crisis of 1857 was not 
bad trade, but a defective currency-law. It was not 
the fault of our commerce, but of our monetaiy system. 
After the crisis had done its work, indeed, the impres- 


sion became general that our commerce had been run- 
ning wild ; and the numerous bankruptcies and suspen- 
sions were appealed to as showing that such must have 
been the case. This was an ex post facto argument of 
a most inconsequential kind. That thirty thousand 
soldiers died in a week's time — that week having wit- 
nessed a battle — is certainly no proof that the army to 
which they belonged was in a frightfully bad sanitary 
condition. Doubtless the ailing soldiers of an army 
are sure to be knocked over in a hand-to-hand fight, 
but the proportion of such cases is insignificant ; and 
thousands more perish who, but for the battle, might 
have lived in health and strength for the natural term 
of existence. The country knows to its cost that the 
failures and suspensions in 1857 were disastrously 
numerous; but the question remains. What was the 
cause of them ? 

The supporters of the cry of overtrading founded 
their charge against the commercial classes on the fact 
that the export-trade in 1857 was greater than it had 
ever been before. It had increased six millions above 
the highest amount in any previous year. True, in 
some of the previous years, there had been an increase 
not only as great, but three times greater. That was 
undeniable ; but, said the supporters of the overtrading 
theory, that does not matter: it is now obvious that 
our merchants and manufacturers have carried trade 
beyond the limits which the capital of the country can 




support. The amount of the increase on the year may 
have been only six millions, but these six millions have 
been an excess. An export-trade of 122 millions, they 
said, is a forced and inflated trade, beyond the require- 
ments of the world, and greater than our accumulated 
wealth can support. And when the exports fell — in 
consequence of the crisis, and of the stagnation of trade 
which followed — they appealed to this fact as a proof 
of the justice of their opinion, and said that this reduc- 
tion in the amount of exports was simply owing to th(3 
country having returned to its normal amount of trade 
and of production. For the time, they had it all their 
own way. No one could bring positive proof that they 
were wrong. It might be — ^though it was not probable 
— that British trade had reached and temporarily 
exceeded the maximum which the requirements of the 
world permitted. But even if this had been the case, 
it was certainly unfair and ungenerous so bitterly to 
taunt the commercial classes, in the midst of their dis- 
asters, with recklessness and insanity, merely because 
they had exceeded a limit which — supposing it had 
existence — could not possibly be discovered save by 
actual experience. 

But what is to be thought of such an allegation 
now ? Actual experience has been acquired, and what 
does it show? Look back at the column of " our Nilo- 
meter," given on a previous page, and see how insig- 
nificant was the increase Cf trade which was thought 


to be " reckless overtrading," and tlie cause of all our 
calamities, seven years ago. Such an increase appears 
a bagatelle; and the ill-fated year, as figured in the re- 
turns of its trade, is passed over by the eye as a very 
ordinary one. Despite the limit which theorisers 
assigned to it as its ne plus ultra, British trade has 
continued to increase, and to an extent which throws 
all former years into the shade. No sooner was the 
year of stagnation, which naturally followed the crisis 
of 1857, at an end, than trade not only resumed its old 
rate of progression, but began to exceed it. In 1859 
the exports were eight and a half milKons greater than 
those of 1857; in 1860, they were fourteen millions 
greater; and last year they exceeded those of 1857 by 
twenty-four millions and a half. Yet no crisis came : 
the country was prosperous, and every one rejoiced in 
the marvellous expansion of our industry and enter- 
prise. Even the terrible cotton-dearth in 1861 failed 
to reduce our exports to their amount in 1857; and if 
any such reduction were to take place, it would justly 
be regarded as one of the greatest calamities which 
could befall us. A steady increase of trade on the part 
of this country is what may naturally be expected, and 
is much to be desired. In truth, if we consider the 
annual increase of our wealth and of our population, 
and the increasing facilities for trade with other coun- 
tries, it will be evident that when the Board of Trade 
returns are no greater for one year than for its prede- 




cesser, such a fact indicates not merely that we are no" 
gaining ground, but that we are losing it. When the 
amount of labour and capital in this country is annually 
increasing, and better markets are being opened for 
the produce of that labour, it is alike unnatural and 
unfortunate if our exports do not likewise show ai^ 
annual increment. 

Although the " excess " of exports shown by th 
Board of Trade returns was the chief gi'ound upon 
which the charge of overtrading was brought against 
the commercial classes in 1857, another circumstance, 
peculiar to the times, contributed notably to make the 
charge popular with the general public. This was the 
publicity then for the iirst time given to the examina- 
tion of bankrupts. Failures which previously would 
have passed unnoticed by the public, then began to be 
reported in full detail in the newspapers, and became 
the subject of conversation in every city and market^ 
place in the kingdom. Scandal-lovers delighted to re™ 
count the extravagance of the bankrupt in his wines, 
furniture, and housekeeping, — how much went to keep 
up his dog-cart, and how much was lavished on his 
mistress ; while men of business dilated upon the na- 
ture and extent of the " accommodation-system," by 
which this speculation and extravagance were carried 
on. It was the revelation of these cases that was new 
in 1857 — not their occurrence. Such exceptional 
cases are, have been, and will continue to occur in 


every large and active commercial community. One 
may as well hope to sever shadow from sunshine, or 
evil from good in this world, as to find a condition of 
trade in which many cases of recklessness and mis- 
management do not coexist with legitimate and pro- 
fitable enterprise. Cceteris paribus, the more numer- 
ous a population is, the greater the amount of poverty, 
folly, and crime ; and in like manner, and from the 
same cause, the brisker trade is, the more numerous 
will be the cases of bad trading. We may regret 
this, as we deplore the other imperfections of human 
nature, but we cannot help it. It is a clog upon pros- 
perity, but not a barrier to progress. The population 
of these Islands has doubled since this century began, 
and we are afraid to say how much more numerous 
are the cases of crime and poverty amongst us now 
than they were sixty years ago ; but, despite these 
drawbacks, the nation has advanced immensely in its 
social condition and prosperity. Progress in Trade is 
just like progress in anything else. There may be, 
and doubtless are, a greater number of bad failures 
now than in former times, but certainly there are not 
more in proportion to the amount of trade carried on.* 

* In 1862 tlie number of bankruptcies in England was nearly 
ten thousand (9663), of whicli upwards of nine thousand (9113) 
paid no dividend at all! In 1863 the returns area little better, — 
the number of bankruptcies being 8470, of which 996 paid a 
dividend of some kind, and 20 paid in full. 

The Times, in a leader on these returns of the Bankruptcy Court, 



And if, in 1857, among tlie scores of bankruptcy 
cases revealed in detail to the public, tbere were some 
of more than usual shamelessness and recklessness, it 
must be also remembered that there were dozens of 
cases of suspensions — probably representing in value 
one-half of all the failures that then occurred — in 

observes : — "Tradesmen must run tradesmen's risks. Bankruptcy 
is an ominous word, but it means, or ought to mean, nothing but 
the proportion borne by misfortune to fortune under fair conditions 
of management. Trade, in the grand sense of the term, always 
involves a certain element of speculation. In old times merchants 
were commonly called ' adventurers, ' and their transactions were 
styled ' ventures ' without any implication of reproach. In these 
days we use the word 'enterprise' to express a similar idea, — the 
meaning in each case being that the merchant or tradesman runs a 
certain risk for the chance of a certain profit. ' Nothing venture, 
nothing have, ' says an old commercial adage. It would be possible, 
no doubt, to make trade a certainty instead of a speculation, but in 
that case we may depend upon it that we should not have sold 
goods, as we did, to the amount of £195,000,000 in the year 1863. 
All those exports show a considerable proportion of ' adventures ; ' 
and adventures must now and then turn out unluckily, or they 
would cease to be what they are. The point to be ascertained is, 
whether these miscarriages exceed or not a certain reasonable ratio 
— whether trade, in short, is 'sound,' or otherwise; whether the 
bankruptcies of a year represent a natural percentage of misfor- 
tunes or a reckless system of business; and, further, as a more 
jiractical question, whether the laws afi^ecting proceedings in such 
cases are operating satisfactorily. 

" Now, should as many as 7000 traders ' smash ' so completely 
in one single year as to leave not a penny for their creditors ? Is 
this a fair average ? Is it the actual average ? Do 10, 000 bank- 
ruptcies, of which 7000 are without assets, speak of good times or 
bad ? Do they represent a maximum or a minimum 1 It would be 
hard, perhaps, to answer these questions accurately, but the figures 
are rather surprising to ordinary people. More than half these 
failures, it is true, were for small sums, but that does not affect 



which the assets of the firms not only covered their 
liabilities, but exceeded them * 

It may well be asked, how came this to be ? In 
these cases, at least, there was no " overtrading." The 
fault must have lain not in trade, but in something 
else. And that thing is the very element of the 
question wliicli the supporters of the " over-trading " 
theory desire to overlook It is that " something in 
the circumstances of the country" which, as we have 
previously suggested interrogatively, on certain occa- 
sions makes our commercial classes appear to be over- 
trading when in truth they are not. This element is 
the operation of the Bank Act : and this it is, and not 
periodical insanity on the part of the trading commu- 
nity, which is the fundamental and originating cause 
of our recurrent crises. They are not " commercial," 

the principle of the matter. The bankruptcy, without a sixpence 
to show for it, still remains. Are we to suppose that this very fact 
explains the bankruptcy, and that if there had been anything 
divisible among creditors the bankrupt would have been kept out 
of court ? If so, it is certainly not unreasonable that inquiry should 
be made into the operation of the Bankruptcy Act." 

These questions are important ones, but they cannot be answered 
until we have similar returns from the Bankruptcy Court for the 
last twenty years. The publication of annual returns only com- 
menced in 1862 ; but we hope that similar statistics — so far as 
relates to the number of bankruptcies, the total amount of gross 
receipts, and the amount of dividend — will be obtained from 1840 

* See a list of some of these cases, siqyra, pp. 110-11. They form 
an extraordinary contrast to the ordinary bankruptcy returns just 
given, and demonstrate in a most striking manner the artificial 
character of the disastrous crisis of 1857. 



but monetary crises. It is commerce indeed that 
suffers, but it is our monetary system which deals the 
blow. The commercial community is the vile corpus 
in which the disease chiefly operates, producing misery 
and ruin ; but it is the system pursued by the Bank, 
under Act of Parliament, which is the primal source 
and efficient cause of the calamity. 

Apart from the operation of the Bank Act, what 

was the nature of the difficulty which our traders had 

to encounter ? We cannot answer this 


THE DiFFi- question better than in the words of the 


Times. Commenting on the large failures 
that were taking place, it said : " Messrs Dennistoun 
have houses in New York and New Orleans, and the 
almost total cessation of remittances from those points 
has rendered the stoppage unavoidable. . . . What 
has caused Messrs Naylor, Vickers, & Co., and Messrs 
Dennistoun to stop ? The simple fact that each suc- 
ceeding mail from America arrived without bringing 
them remittances of bills to enable them to apply for 
discount. Their capitals were ample." * " Any firm 
with fair capital and credit is always prepared to meet 
a short strain ; but few can be expected for weeks and 
weeks to discharge the cost of wages, raw material, 
and all the other items in the manufacture of the 
goods they have shipped, when the returns for these 
goods are stopped by a convulsion so violent and so 

* Times, November 9, 1857. 



little foreseen that it is likened on the spot to an 
attack of epilepsy." * Such was the embarrassment 
which our traders had to meet, — sudden, unforesee- 
able, and neither arising from nor revealing any fault 
on their part. The embarrassment, also, was as tem- 
porary in its nature as it was artificial " In America," 
said the Times, on the 13th of October, " the arrears 
now due to England and the Continent are enormous, 
and are accumulating every week : and the moment 
the panic there subsides, and the influence of the fort- 
nightly gold arrivals again begins to be felt, the scarcity 
of bills upon us may be as remarkable as their present 
abundance. . There is, consequently, nothing to excite 
apprehension that the disturbance will be protracted." -f- 

This, then, was the whole difficulty, — perfectly arti- 
ficial in its character, and temporary in its duration. \ 
Any man of common sense will wonder that so slight 
a difficulty should have led to so tremendous a crisis. 
Our traders had Capital enough, but they could not 
get Money. Their credit was unquestioned, but our 
credit-system had wholly given way. Again we ask. 
Why was this ? 

A word will explain the matter. A drain of gold — 
though, as we have shown, a merely superficial event, 

* Times, October 26, 1857. + Ibid., October 13, 1857. 

X In truth, so ephemeral was the difficulty, that within two 
months after the crisis reached its height, we had not only got from 
America all the gold that we had sent thither, but nearly three 
times as much, — namely £3,200,000. 



in no way necessarily connected with national loss, 
or expressive of national indebtedness — under our 
present system, is the grand cause of the recurrent 
" crises" which inflict vast losses upon our commer- 
cial classes. But the same result may be produced 
by an internal drain (whether of gold or of notes), 
owing to panic or some other cause temporarily in- 
creasing the monetary requirements of the community. 
And such a panic and drain naturally arise whenever 
the banks refuse to continue their usual advances 
to Trade. In 1857, in consequence of the panic and 
temporary suspension of cash-payments by the banks 
in the United States, there was a delay in the usual 
remittances from thence; and also, a million and a 
quarter of gold was sent thither from this country, 
— partly for the purpose of purchasing American 
stocks, then unduly depreciated. Such investments, 
made by our capitalists, were as legitimate, and at 
least as profitable, as if iron or cotton goods had 
been exported to an equal value. But the export of 
property in the form of specie has a very different 
effect, under our present system, from the export of 
property of other kinds. Merely temporary as was 
this diminution of our usual reserve stock of specie, 
the operation of the Bank Act was such as to occasion 
an internal drain likewise, and ultimately, and very 
rapidly, to shake down our fabric of trade altogether. 
The operation of the Bank Act, when a drain of 


gold takes place, is threefold — viz., 1, To raise the rate 
of discount even for first-class commercial 


BY THE bills to an exorbitant height ; 2, To render 

many bills {i.e., the form of currency by 
which our larger monetary transactions are carried 
on) unnegotiable, which in other circumstances would 
have been esteemed perfectly good; and 3, at the 
culmination of the crisis, so to reduce the available 
resources of the Bank as to render that establishment 
incapable of lending the customary assistance to firms 
upon any terms, — even though the solvency of these 
firms be as unquestioned as that of the Bank itself, 
and though their suspension should cause a panic 
which would endanger the position of every bank in 
the kingdom. For example, in November 1857, the 
great house of Peabody & Co., temporarily embarrassed 
by the suspension of payments in America, applied to 
the Bank for the loan of nearly a million sterling, 
which the Bank, with its power of issue restricted by 
the Act of 1844, refused to give ; and all London tot- 
tered, — for it was known that if that great firm went 
down, dozens more would fall with it, and the panic 
would become universal. The suspension of the Bank 
Act alone prevented this catastrophe, by relaxing the 
arbitrary fetters on the Bank's issues, and thereby enab- 
ling it to advance the sum required. "We may add, so 
thoroughly solvent, indeed excessively wealthy, was this 
temporarily embarrassed firm, that the private property 



of the chief partner was of itself held by the Bank 
to furnish sufficient security for this enormous, but 
urgently-needed, loan.* But if Peabody & Co. were 
saved — and we rejoice that they were so, — why were 
the Dennistouns, Naylor, Yickers, & Co., and many 
others, sacrificed ? The circumstances of all these 
firms were alike, — why was their fate different ? Each 
had an ample capital — each, from no fault of its own, 
was temporarily embarrassed ; why, then, was not the 
required assistance given equally to all ? Simply be- 
cause we have an unworkable Bank Act, which it is 
a point of honour with some theorists, and a point of 
self-interest with all money-dealers, to uphold to the 
last, although trade and industry go to wreck and ruin. 
The originating cause of the crisis of 1857 in this 
country, as the Times correctly stated, was a delay in 
the usual remittances of bills from America, — these 
bills being the chief instruments by which all our trade 
is carried on. It is upon these bills that the banks 
make their usual advances to trade; but such ad- 
vances may be, and often are, made irrespective of 
bills, upon the securities and assets of mercantile and 
other firms. But when this temporary want of bills 
took place in 1857, owing to the crisis in America, the 

* For some interesting incidents connected witli the threatened 
failure of this great firm, and of the eminent philanthropist who was 
at the head of it, see the recently j)ublished Notes on Speculation^ 
by that veteran City man, Mr Morier Evans. 


temporarily embarrassed firms in this country were 
refused advances upon other securities. There was no 
adequate reason for this. There was a large supply of 
loanable capital in the banks ; and many of the embar- 
rassed firms — such as the Dennistouns, NaylorjVickers, 
& Co., and others — had ample securities to offer for the 
accommodation which they required. But, under our 
present system, there is no adequate means of making 
those advances. There are two difficulties in the way. 
There is (1) a monopoly of the instrument of exchange ; 
and (2), besides that monopoly, there are artificial 
restrictions imposed upon the amount of currency. 
And when the Bank of England refused to assist the 
temporarily embarrassed firms, there was no help for 
them. The Bank of England, as we have shown in 
the previous chapter, is the only bank of issue which, 
under the present law, can greatly extend its issues. 
Our other banks of issue are so weak that hardly any 
one of them would venture to make advances to the 
extent of half a million in aid of an embarrassed firm, 
however ample might be the securities which the firm 
had to offer. Moreover, all our banks of issue are so 
insignificant compared with the Bank of England, that 
they now simply follow its example — willing to profit 
by the high rates of discount which the Bank's policy 
at such times establishes. 

Hence when the Bank of England refused to aid 
the Dennistouns and others, these perfectly solvent 



firms were brought to a stop, and had to suspend 
payments. Thereupon each of these suspended firms 
became a centre and fountain of fresh embarrass- 
ments. Many of the lesser firms commercially con- 
nected with them had likewise to stop payment. 
Distrust overspread the country. Every trader 
doubted his neighbour's bill ; and cash was demanded 
where a bill would have been accepted in ordinary 
times. More currency being thus required, a drain 
commenced upon the Bank. Many persons also, see- 
ing the Bank's reserve declining, and knowing that 
the rate would soon be raised still higher, hastened 
to provide themselves with even more money than 
they required. They could not tell what might hap- 
pen, and they prepared themselves for still greater 
emergencies. Up and up went the Bank's rate, — lower 
and lower fell prices. The markets were so depressed 
that merchants could not sell their goods save at a 
loss of 25 per cent. Failures, of course, multiplied, — 
and each fallen firm brought down with it some of its 
customers. Distrust swelled into panic. The dis- 
count-houses stopped discounting, — the joint -stock 
and other banks did likewise, or at least greatly con- 
tracted their discoimt-operations. There was plenty 
of capital to lend, but, for the means of lending it, the 
other establishments were all dependent upon the Bank, 
the great fountain of our domestic currency. Accord- 
ingly, nearly the whole burden and profit of discounting 


was thrown upon the Bank. It made its own terms ; 
it exacted 10 per cent. Nevertheless, its resources (re- 
stricted by the Bank Act) were insufficient to meet 
the demand upon it. In other two hours, the failure 
of Peabody & Co. and other firms would have created 
such a panic in London, that a tremendous run upon 
the Bank for deposits would have arisen. Then, at 
last, the Government did for the Bank what it would 
not do for the equally legitimate interests of Trade, 
and suspended the Act of 1844. 

No crisis could more clearly demonstrate the de- 
fects of our present monetary system. It proved how 
entirely all the other banks are dependent upon the 
Bank of England, and how fatal are the artificial re- 
strictions placed upon the bank-issues of the country. 
There is not only a monopoly, but even the banks 
which enjoy the monopoly have not, under the present 
system, the means of supplying the wants of the com- 
munity. True, for our own part, we believe that if 
the Bank had at the outset freely employed its " re- 
serve " (that portion of its resources which it is allowed 
to use) in the support of all solvent though embar- 
rassed firms, like the Dennistouns, the crisis might have 
been prevented, — the evil might have been nipped in 
the bud ; and no panic would have arisen to occasion 
the heavy internal drain which at length proved fatal 
to the Bank — or at least to the Bank Act. But if the 
Bank Court be exonerated, only the greater blame 



must fall -upon the Act. And the heavy charge 
stantiated against our monetary system in 1857 is this: 
that, by its operation, it imported the American crisis 
into this country. A transient embarrassment, in no 
way affecting the solvency of British trade, instead of 
being met by the proper means, was aggravated into 
the severest crisis which this country has yet under- 
gone. Trade was robbed of its wealth, through a 
depression of the markets to the extent of 25 per 
cent, and scores of firms, as solvent as the Bank 
itself, were forced into the Gazette. ^ 

And all this was caused by an unwise interference 
of the Legislature with our old freedom of banking ; 
and especially by the legislative embargo placed upon 
nearly seven millions of gold in the Bank of England, — 
in consequence of which monetary crises are now pro- 
duced under circumstances in which (but for this em- 
bargo) no embarrassment at all would be experienced. 
Under the existing system, the ordinary monetary 
accommodation is withdrawn from Trade at the very 
times when it is most urgently required. The Bank 
turns its back upon Trade : the Act says, "No — you 
cannot have your bills discounted upon any terms," 
even while there are six or seven millions of gold in 
the Bank. When the Bank has exhausted its powers 
of issue as restricted by the Act, it has still these mil- 
lions of gold on hand, — yet not one sovereign of that 
immense sum can be used by the Bank, either for dis- 


counting purposes, or in discharge of its banking 
liabilities. The reserve, in fact, as established by the 
Act, is useless. Yet for the sake of keeping up an 
inert deposit, these millions are withdrawn from bank- 
ing purposes, and the whole commerce of the country 
is periodically sacrificed. It is not Trade that peri- 
odically becomes insane,— it is our Monetary System 
that ever and anon becomes inadequate. A drain of 
gold occurs — or, it may be, a crisis in some other coun- 
try temporarily embarrasses our traders : thereupon 
the Bank of England refuses to assist these firms — 
raises its rate, — depresses the markets, — aggravates 
the difficulty ; the other establishments stop discount- 
ing, and Trade is brought to the ground. This, in 
brief, is the position. How long is it to last ? 









I— il^Oi-H{M>^OSQO(NC<l a 
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There is no uniform method adopted in these Balance-sheets, as some banks give information which is not given by others. Under the head of " De- 
posits," the banks generally include the amount of their liabilities on Acceptances— which are not Deposits in the sense which the Public attaches to the 
term. The London and County and the Consolidated Bank state the amount of their Deposits and of their Acceptances separately; and it is to be lioped 
that the other banks will adopt the same course. § The Reserved Fund, or " Rest," consists of a portion of the profits of past years which have not 
been divided among the shareholders, and which are kept in hand to supplement the amount of dividend in years when the profits of the Bank may fall 
below the average. Pro temp., they are really an addition to the Paid-up Capital of the Bank, although it is not usual to take them into account when 
calculating the percentage of the Bank's profit upon its capital. § It is to be borne in mind that the amount of the " current expenses" depends very 
much on whether or not the bank has branches. § The figures in the 10th column in some cases include the cash which the bank keeps " at notice." § In 
the 11th column, the amount set down to the London and County Bank under the head of Government and guaranteed stock, includes £100,000 of other 
kinds of stock ; and the amounts set down in the same column to the City and the Union Banks likewise include a certain portion of "other debentures." 
§ " No return " means no separate return. For example, in the balance-sheet of the London Joint-Stock, the " cash in hand" is classed with the amount 
of ' bills discounted and other securities ; " and in the London and South- Western, the amount of " interest" paid is classed with the " current expenses." 

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As a general rule, the London joint-stock banks pay interest 
at the rate of 2 per cent on the minimum montlily balance of 
Current-accounts which do not at any time fall below ^500 dur- 
ing the half-year ; and 1 per cent on such accounts when they 
fall below £500 but not below £200. On Deposit-accounts, 
which cannot be withdrawn without a week's notice, the joint- 
stock banks pay interest at the current rate of the day — i. e., at 
the minimum rate of the Bank of England, — provided that the 
rate do not exceed 5 per cent. 

Of the banks whose balance-sheets show the amount of i: 
terest paid to customers, only one (the London and County) gives 
also the true amount of its customers* balances (as distinguished 
from Acceptances, &c.) ; therefore there are no adequate data for 
ascertaining the exact percentage of interest paid by these banks 
on the money intrusted to their keeping. In the case of the Lon- 
don and County Bank, where the requisite data are given, the rate 
of interest paid to customers amounts to only |ths of a per cent. 
In the case of the three other London banks given in Table II., 
the rate of interest which we have conjecturally assigned to 
them is greater — varying from 1 to 1 1 per cent : but our calcu- 
lation is made on the supposition that the amount of " Accept- 
ances " held by these banks is as large, in proportion to their 
total so-called "Deposits," as that held by the London and 
County Bank, — should it be less, then the rate of interest which 
we have assigned to them is too high. One per cent, or at 
most Ij, appears to be a safe estimate of the average rate of 
interest paid by the London joint-stock banks upon the aggre- 
gate money of their customers, during the last half-year. 

The Scotch banks, on the other hand, pay interest on every 
sum intrusted to their keeping, whether large or small. They 
now divide their Deposits into two classes : in one of which the 
interest is calculated on the daily balances, in the other, on the 
minimum monthly balances, — a higher rate, of course, being 
allowed upon the latter than upon the former. In one bank 
(which has obligingly favoured us with statistics) the latter class 
comprises rather more than one-half of the whole deposits in 
the Bank ; and it is also found that a current-account calculated 
on the minimum monthly balance shows one-twentieth part 


less than if calculated by the daily balances. In other words, 
suppose the daily balances show a customer's account to have 
averaged ;£200 throughout a month, the minimum balance for 
that month would be .£190. 

During the last half-year, the Scotch banks have paid a fixed 
rate of 3 per cent interest on current-accounts calculated on the 
daily balances, — and 4^ on deposit-receipts and current-accounts 
calculated on the minimum monthly balances. And as it is 
found that the sums deposited with the banks are divided 
between the two classes in nearly equal proportions, it follows 
that the average rate of interest paid by the Scotch banks 
during the past half-year has been 3| per cent. 

The results of the comparison between the English and Scotch 
systems of banking, as shown in Table II., may be summed up 
thus : — 

I. The Scotch banks pay to their customers a greatly higher 
rate of interest upon the money deposited with them than the 
English banks do : the Scotch banks at present paying at the 
average rate of 3| per cent, and the English banks about 1 per 

II. The Scotch banks keep larger banking reserves than the 
London banks do : the average proportion of reserves to liabili- 
ties kept by the four London banks being 20 per cent ; while 
that of the three Scotch banks averages 33^ per cent. 

III. The profit of the Scotch banks amounts to 11^ per cent 
on their paid-up capital, while that of the English banks amounts 
to 30 per cent. 

Hence it is manifest that the Scotch system of banking gives 
much greater advantages to the public than the English system 
does. And, as a natural consequence, the English system yields 
larger profits to bank-proprietors than the Scotch system. 




No. I. 

Table showing the changes in the Bank of England's rate 
discount from 1695 down to the passing of the Bank Act in the 
autumn of 1844; and also the amount of coin and bullion simul-__ 
taneously held by the Bank subsequent to 1822. W 







per cent 


per cent 


From 1695 \ 
to 1762 f 


1836 June 
, Aug. 

4& 4^, 
4i &5 


From 1762 ) 
to 1822 ] 


,, Sept. 







18b8 Feb. 



1823 1 



„ Mar. 



1824 f 


, 1839 May 





1 ,, June 



1826 Jan. 



, >, '^uly 

5^ " 


1827 Feb. 



i „ Aug. 



1827 Aug. 



1840 Jan. 





„ Feb. 



1829 \ 






i 1842 Apr. 



1831 \ 



„ May 



1832 [ 






1844 Feb. 






— Compiled from statistics given in the Appendix to the Report of the Parlia- 
mentary Committee on Commercial Distress in 1848 (see App. Nos. 4, 7, 
and 13). And also from Francis's History/ of the Bank of England, vol. ii. pp. 

* The sums in the bullion column which are marked by an asterisk represent 
the approximate amount, in most cases calculated upon the amount of bullion in 
the Bank on the 28th February and 31st August of each year. 

t The amount of bullion in the Bank in January 1826 we have estimated from 
the amount held at the end of the following month, making allowance for the 
rapid decline which was then taking place. 

No. II. 
Table showing the changes in the Bank of England's minimum 
rate of discount subsequent to the passing of the Act of 1844 ; 
and also the amount of coin and bullion held by the Bank at 
the date of each of these changes. 



Date of Change. 



Date of Change. 



per cent 


per cent 


1844 Sept. 5. 



1858 Feb. 11. 



1845 Mar. 13. 



„ Dec. 9. 



„ Oct. 16. 



1859 Apr, 28. 


,, Nov. 6. 



,, May 5. 


1846 Aug. 27. 



„ June 2. 



1847 Jan. 14. 



)> )) 9. 



„ „ 21. 



„ July 14. 



„ Apr. 8. 



1860 Jan. 19. 



„ Aug. 5, 



>} >) 31. 



„ Oct. 25. 



„ Mar. 29. 



„ Nov. 27. 



„ Apr. 12. 



„ Dec. 2. 



„ May 10. 



„ „ 23. 



„ „ 24. 



1848 Jan. 27. 



„ Nov. 8. 



„ June 15. 



y> )} 13. 



„ Nov. 2. 



j» )y 1^. 



1849 Nov. 22. 



}} >> 28. 



1850 Dec. 26. 



,, Dec. 31. 



1852 Jan. 1. 



1861 Jan. 7. 



„ Apr. 22. 



„ Feb. 4. 



1853 Jan. 6, 



„ Mar. 21. 



„ „ 20. 



„ Apr. 4. 



,, June 2. 



„ „ 11. 



„ Sept. 1. 


„ May 6. 



j> )> IS- 



„ Aug. 1. 



„ „ 20. 



)> f> 15. 



1854 May 11. 



>» >f 29. 



„ Aug. 3. 



„ Sept. 19. 



1855 Apr. 5. 



„ Nov. 7. 



„ May 3. 



1862 Jan. 9. 



,, June 14. 



„ May 22. 



„ Sept. 6. 



„ July 10. 



)) }) 13. 



,. „ 24. 



,. „ 27. 



„ Oct. 30. 



,, Oct. 4. 



1863 Jan. 15. 



)} )) 18- 
1856 May: 22. 



)) }) 28. 




„ Feb. 19. 
„ Apr. 23. 






„ „ 30. 



,, June 26. 



„ May 16. 


„ Oct. 1. 



„ „ 21. 



,, „ 6. 



„ Nov. 2. 


}j }} )f 

}> )f 5. 



,, Nov. 13. 



„ Dec. 2. 



,, Dec. 4. 



>) )) 3. 


j> )} 18. 



„ „ 24. 



1857 Apr. 2. 



1864 Jan. 20. 



,, June 8. 



„ Feb. 11. 



„ July 16. 



„ „ 25. 



,, Oct. 8. 



„ Apr. 16. 



„ „ 12. 



„ May 2. 



M „ 19. 



)7 f> 5. 


„ Nov. 5. 



„ „ 19. 



>> }> 9. 



„ „ 26. 



1858 Jan. 7. 



„ June 16. 



» „ 14. 



„ July 25. 



„ „ 28. 



„ Aug. 4. 



„ Feb. 4. 



„ Sept. 8. 



* For 60 days' bills. 

t For 95 days' bills. 



The high rates of discount charged by the Bank 
during the last twelve months, call for a parting word 

Loud complaints are made at present in regard to the costly 
armaments maintained by the Great Powers of Europe, which 
burden Industry by means of the heavy taxation which they 
occasion. But does it never occur to our economists and re- 
formers, and to all who have the welfare of industry at heart, 
that there is a belligerent monetary policy established in this 
country, hardly less detrimental to the interests of industry and 
to the welfare of the masses, and which could be more easily 
dispensed with than the defensive armaments of war ? 

Ever and anon the Bank of England makes war upon all 
other countries, either in defence of its own stock of gold, or in 
order to gain possession of theirs. It makes war upon them by 
exorbitantly raising its rate of discount. How far such a pro- 
cedure is called for, we have discussed in the body of this work : 
we here allude to this belligerent policy for the sake of point- 
ing out its results from an international point of view. 

Its only result is to raise the value of money throughout 
Europe, and thereby to oppress the industry and check the 
commerce of other countries as well as of our own. The Bank 
of England does not now obtain its object. Whenever it tries 
to rob other countries of their gold, the banks of those coun- 
tries retaliate, and effectually defend themselves by raising 
their rates in proportion. Then up goes the Bank of England's 
charge still higher, — and up in turn go theirs. And so the 
position, quoad the possession of gold, remains unchanged. But 
a great change is thereby made in the profits of banking, and in 
the condition of Trade. 

This policy of war, liowsoever the banks may profitably play 
at it, is most detrimental to Industry. It abnormally raises the 
rate of discount throughout Europe, — the banks get increased 
profits — and the commercial classes are plundered. 

** Quicquid delirant reges, plectuntur Achivi." 

However mad, in a monetary point of view, may be this war 
of the banks, the commercial classes of each country have to 


pay the cost of it. The international conflict is carried on — the 
Bank of England ever acting on the offensive, and charging the 
highest rates, — until Trade in this country fairly breaks down. 
And then the money which the Bank could not get from other 
countries, accumulates in its coffers simply because our owti 
industry has been paralysed, and no longer needs so much 
money to carry it on. 

Surely it is time to put a stop to such a policy — so needless 
and so injurious — which obtains no advantage for any country, 
but which inflicts injury upon them all, — and which simply 
profits the banks of Europe at the cost of the commercial and 
working classes. 




The Crisis at Hamburg in 1857. 

The following account of the remarkable monetary crisis at 
Hamburg in 1857, is taken from Fenn's British Funds (eighth 
edition), pp. 266-267 :— 

" The commercial embarrassments in the United States, the 
suspension of several London houses closely connected with 
Hamburg houses in the Swedish trade, brought down in No- 
vember and December most of the houses engaged in the 
Swedish, Norwegian, and Danish trade. A state of things now 
ensued never before knoAvn in Hamburg ; confidence was en- 
tirely destroyed, and it was thought imperative that the State 
should interfere. 

" The Burgerschaft empowered the Senate to advance Govern- 
ment bonds, to the amount of £1,200,000, against the deposit of 
goods ; and passed a law suspending, untU April 1, 1858, the 
bankruptcy laws in favour of such houses as could show that on 
the day of suspending they had sufficient means to justify the 
belief that they could, if time were allowed, meet all their en- 
gagements, and allowing them to wind up their affairs under 
administration, with the consent of the majority of their 
creditors. But these measures of relief were found quite inad- 
equate; the panic was so great that the Government bonds 
thus issued could not be discounted ; and on no security what- 
ever would capitalists part with their money. 

" At last, after many discussions, on the 6th of December, the 
Senate finally proposed that a silver loan of £1,125,000 should 
be contracted for; and that, in the mean time, a deposit of j 
Government bonds and railway shares, to the amount of 
£375,000, should be placed in the public Giro Bank, and the 
sum so represented employed by the State in discounting good 
mercantile bills. The proposal of the Senate was acceded to 

i I 



by the Burgerschaft ; and shortly afterwards the Austrian Gov- 
ernment agreed to advance the loan wanted by the Hamburg 
Senate, which the Prussian Government had peremptorily 
refused to do. 

" But even this measure of relief did not restore confidence, 
though there were large stocks of silver in the hands of capital- 
lists, owing to the dread generally entertained that some of the 
leading houses in Hamburg and Altona would not be able to 
meet their engagements. When, therefore, 10,000,000 of 
marcs Banco in silver — part of the 17,000,000 marcs loan 
advanced by the Austrian Government — arrived from Vienna, 
the Senate, to whom the houses thought to be in difiiculties in 
the mean time had applied for assistance, called another meeting 
of the Burgerschaft, and proposed that the latter sum should be 
intrusted to a secret committee, which should be empowered to 
lend the same to the houses in question on good security. This 
proposition was agreed to ; and on the 12th of December, im- 
mediately that it was made known that the assistance of the 
State would enable the leading houses to fulfil their engagements, 
the panic ceased, — and money became so abimdant that in the 
last week of December, the Government bonds issued as the 
first measure of relief, which in the beginning of that month 
could not be discounted at 15 per cent, were readily taken at a 
discount of 2 to 3 per cent, and bills on houses of undoubted 
credit were discounted at the same rate. 

" Altogether about 220 Hamburg and Altona houses suspended 
payment in the months of November and December 1857. Of 
this number 176 houses (nearly three-fourths of the whole num- 
ber) availed themselves of the law of the 2d of December passed 
to aid the winding up of the affairs of suspended firms under 
administration. About 50 were declared bankrupt, and the rest 
made private arrangements with their creditors. The bill lia- 
bilities of the suspended firms were better met than was at first 




"What is a Pound ? * 

" The main object " of our present currency system, as regu- 
lated by the Act of 1844, says the recent Eeport of the Select 
Committee, " was undoubtedly to secure the variation of the 
paper-currency of the kingdom according to the same laws by 
which a metallic circulation would varyT Variation ! what a 
strange principle whereon to base a currency. Is not the prime 
requisite of a currency stability of value ? And, in the face of 
this truth, how is it that our statesmen adhere to a legisla- 
tion the avowed object of which is to base the whole currently 
of the kingdom upon the principle not of stability in value, 
but of fluctuation ? At first sight there seems a great mystery 
here, — namely, as to how men of good sense in other respects 
can be found supporting so pernicious an absurdity. But 
this proceeds from a mistake often witnessed in the history 
of nations, especially at times when the progress of society is 
becoming fettered by institutions which once promoted its 
growth. Our statesmen now err by mistaking a means for the 
end. Gold, which is but one form of money, they have come 
to regard as the sole form : and hence, believing that nothing 
but gold can constitute a currency, they are forced to accept it 
with all its defects, — or indeed even regard these defects as 
worthy of respect, because necessary parts of what they con- 
ceive to be an indispensable system. 

If those statesmen would either cast their eyes back into 
history, or lift them to view the world as it is, they would dis- 
cover their mistake. Let them, for example, turn back to the 
origin of Money, and consider the state of things when gold was 
first adopted as a form of that most useful handmaid of com- 
merce. Was there not as much controversy then in regard to 
gold-money as there is now with respect to paper-money ? Most 
assuredly there was, and must have been. Gold-money has been 
so long recognised in this and the other countries of the Occi- 

* Reprinted from the Ediriburyh A dvertiser of July and August 1858. 


dental world, that no one questions its validity as a medium of 
exchange ; but when it was first introduced, the diflB.culty of 
getting it accepted was doubtless far greater than that which 
was experienced on the introduction of paper-money amongst 
us a century and a half ago. 

In Greece and elsewhere, the earliest coinage is said to have 
been instituted to represent the value of cattle ; — just as in 
their State of Utah the Mormons, from a dearth of the pre- 
cious metals, lately established a paper-currency based upon a 
like standard. Of old, as thus in Utah, an ox or a sheep was the 
measure of value, — ^because these animals formed the chief wealth 
of the community, and were the most common form of payment 
when trade was conducted on the principle of barter. But 
assuredly, in that primitive age, when a purchaser appeared in 
the market for the first tinie offering these coins in exchange 
for goods, he would find few men ready to strike a bargain 
with him. We can easily conceive some bucolic possessor of 
fat beeves turning with angry contempt from the proffered bits 
of yellow metal, and thinking himself as much a fool if he were 
to part with his stock for such glittering dross as the mother of 
Jack the Giantkiller thought her hopeful son when he sold her 
cow for a hatful of beans. " It is of no use to me," he would 
say, " of itself, — I can neither eat it nor drink it, nor turn it in 
any way to use ; and as to what you say about other people 
being ready and willing to give me goods for it the same as if 
this gold-piece were an ox, that's all nonsense, and you had bet- 
ter not try to ' come over' me m that style." The Lord Overstone 
of those times, with his wealth all in sheep and cattle, would 
have resisted any proposal to assign an independent value to 
those gold-pieces, — just as the great capitalist of the present 
time refuses to accord the slightest indej)endent value to pound- 
notes. Sir Robert Peel, in answer to " What is a Pound ? " 
pulled out of his pocket a sovereign ; the Peel of ancient times, 
in answer to an analogous question, must have lugged into the 
Senate-house an ox ! The Bullionist maintains that a note ought 
not to be allowed to circulate unless there is an equal amount of 
gold in the bank which issues the note ; his prototype in early 
times would have treated the gold-pieces in similar fashion 



whenever they could not instantly be converted into oxen, 'ine 
former, when war or panic temporarily drains away our gold, 
insists that our paper-money shall be diminished in like pro- 
portion ; and the latter (had there been such a being) must 
have in like spirit demanded the destruction of the gold-money 
whenever there was a murrain amongst the cattle. 

It was only by a slow process at first that gold-pieces came to 
be recognised as a medium of exchange, in supplement to barter. 
Even when fully established in one city or community, other cities 
or states would for long refuse to have anything to do with it. 
Commerce and civilisation in time did the work, — inducing one 
city or tribe or nation after another to give up barter, or at 
least to supplement it by means of gold-money. Nowadays gold- 
money is established in credit all over the greater part of the 
civilised world, yet the process is far from complete : for, besides 
barbarous regions, in civilised China one-third of the entire popu- 
lation of the globe refuse to acknowledge gold as money ; and in 
India gold-money is not a legal tender, and has comparatively 
little place in the circulation. Whether, therefore, we look 
back into history, or abroad upon the world as it is, the truth 
is forced upon us that gold has no claim to be regarded as the 
only real form of Money, — ^that it is not recognised as money at 
all amongst nearly one-half of the civilised population of the 
earth, — that it circulates as money solely by force of social 
agreement, and that the same force may demonetise it at 
pleasure, or create other forms of money to supplement its 
deficiency or compensate its fluctuations. 

Paper-money, the chief of the forms of currency which have 
been devised to supplement the defects of metallic money, is 
now going through the same course as gold and silver had to 
do in early times, and is as surely winning its way to general 
acceptance. Paper -money is beyond all question infinitely 
cheaper, as well as more portable, than metallic money ; and, 
by a due regulation of its issue, the measure of value in 
any country can also be kept more steady in value than 
if the currency were solely based upon the precious metalsi 
As a mere matter of cost (which is ,but a trifle compared with! 
the weightier points involved), the gold-money in circulation 




in the United Kingdom, amounting to about ^80,000,000, costs 
the country, by loss of interest and wear and tear, fully five 
millions a-year, — a sum which, if saved, would prove a great 
alleviation of the national burdens, and an important agent in 
diminishing the National Debt. But a still more important 
advantage from an improved use of paper- money would be the 
means thereby afforded of obviating the extraordinary fluctua- 
tions to which our currency is subjected from being based 
entirely on gold-money. Paper- money has already established 
itseK as a representative of gold-money ; what it must next do 
is to establish itself as a substitute for gold-money, — just as the 
gold coins of old, from being representative of oxen, became 
by-and-by a substitute for them in commercial transactions, and 
invested with a recognised value of their owti. 

No one questions that paper-money would do perfectly well for 
the internal circidation of the kingdom. Bank of England notes 
lowered to £1 would serve all the purposes of the 80,000,000 
sovereigns circulating amongst us, besides possessing many great 
advantages. But then, say the objectors, if the domestic circula- 
tion be permitted to become one of paper-money, how are we to 
meet the foreign exchanges ? Our paper-money will not circu- 
late abroad, and if we keep no gold in our own circulation (say 
they), how are we to get it when we want to send money to 
other countries ? Now — even putting out of view the fact that, 
whatever amount of sovereigns be circulating in this country, 
they are quite unavailable for sending abroad unless we issue one- 
pound notes to fill their place and allow the domestic trade to 
be carried on, — there are two sufficient answers to this question. 
One of these may be made in Scotch fashion, by asking another, 
— namely, how this country managed from 1797 to 1815, when 
there was hardly a guinea in circulation ? That period was 
the most perilous and trying which the British empire ever 
came through — ^it was a period, too, remarkable for a great ex- 
pansion of our trade and commerce, — ^nevertheless, although 
gold-money had almost disappeared from circulation, no diffi- 
culty was found in settling the foreign exchanges, and the Gov- 
ernment was even able besides to obtain large sums of metallic 
money to pay and feed our armies abroad and to subsidise those 



of other States. "Where, then, is the difficulty of procuring 
gold, though the domestic circulation consist of paper-money ? 
It is merely imaginary. Gold may be bought in the market 
like any other commodity. Indeed the " difficulty" anticipated 
by the Bullionists in regard to gold already exists, without pro- 
ducing harm, in regard to silver. With no two countries in the 
world are the exchanges so perpetually against us as with India 
and China, — and with both of those countries we must settle the 
exchanges not in gold but in silver. Yet we find no difficulty 
in getting the silver, — and there would be just as little in get- 
ting gold, though not a sovereign were in circulation in this 
country. In fact, by dispensing with the use of gold in oui' 
domestic currency, there would just be so many millions more 
of the precious metals thrown into the markets of the world. 

The other answer is, that if a system of paper-money possessed 
{dejure as well as de facto) of an independent value were fully 
established in this country, that very fact would tend to make 
our notes acceptable to a considerable degree even in foreign 
countries; and that acceptability would go on increasing year by 
year, as the international bonds of commerce are drawn closer. 
At present, by Act of Parliament, we expressly take away de 
jure from our paper-money the value which it has de facto ; and 
foreigners would be fools indeed if they were to attach to our 
paper-money a value which we ourselves (or at least our Acts 
of Parliament) repudiate. Nevertheless, if any one go to Paris 
with his whole money in Bank of England notes, he will find 
not the least difficulty in getting French coins for them at the 
money-changers,— just as he requires to do with our shillings 
and half-crowns and sovereigns, which he has to commute into 
francs and the other coins of the country. In fact, in process 
of time, as the various European States are drav\Ti into still 
closer commercial relationship, we have no doubt that a "Bank 
of Europe " wiU be established, whose notes will pass current as 
a means of settling the exchanges, just as bills of exchange do 

" What is a Pound sterling ? " was the question which puzzled 
our legislators in 1844, and which seems to puzzle them yet. 
After long consideration. Sir R. Peel declared that he could see 



no answer to the question except that " a pound was a sovereign, 
and nothing hut a sovereign." The answer is an intelligible 
one, inasmuch as the idea is expressed most plainly ; and it has 
also a very practical look ahout it, which doubtless did much to 
win for it the ready acceptance it met with from the Senate of 
the most practical-minded people in the world. But the idea 
itself is only half-true, and in many important respects is cal- 
culated to mislead. The sovereign unquestionably is a pound 
sterling, but we deny altogether that a pound is and can be 
nothing but a sovereign. Common folks, who are not so up- 
lifted by theory as to be blind to the facts around them, have an 
idea that twenty shillings are quite as much a pound sterling 
as a sovereign is ; and so they are, although payment in silver 
cannot now be forced upon any one save to the extent of forty 
shillings. Nevertheless, with this arbitrarily and recently 
imposed restriction, twenty shillings are quite as much a pound 
sterling as a sovereign is. We have also the idea that a pound- 
note is a pound sterling ; and as long as the bank that issues it 
is solvent {i. e., has the right to issue it), that piece of engraved 
paper will buy quite as much com, or coal, or labour, as either 
a sovereign or twenty shillings. 

If a sovereign be a pound sterling, it is only because the will 
of the nation has made it so. The pound has existed for centu- 
ries, — the sovereign is a thing of yesterday. Our fathers, or at 
least our grandfatliers, knew of no such coin. Twenty shillings, 
or a guinea minus a shilling, was their pound. And in the pre- 
vious generation, silver was the standard-money quite as much 
as gold was, — or more so. That was the case a century ago. 
In earlier times the case was still more different from what 
it is now. The pound sterling was originally a pound of silver. 
K that standard had been retained, the pound would now have 
been worth four sovereigns, — for, according to the present rela- 
tive value of gold and silver in Europe and America, it takes 
.£4 to buy a poimd of the latter metal. By making a sovereign 
to represent the pound sterling, therefore, a great change has 
been made — gradually and almost imperceptibly as our mone- 
tary wants required, but still a very great change. The ancient 
money - standard of France, the livre, underwent a similar 




change. In fact, it is the commonest thing in the world to find 
that though the money - standard of a country preserves its 
ancient name, it has entirely lost its original value. In Classic 
ages the money-pieces which at first got their name from being 
equivalent in value to an ox or a sheep, in process of time 
entirely departed from that standard. So invariable is this 
process, and so characteristic of all monetary systems, from 
the most developed down to those but little removed from the 
system of barter, that we find it illustrated even among the 
Negro communities of Central Africa. In Kukawa (the capital 
of Bornou) and surrounding district, the same thing has hap- 
pened to the pound of copper that with us has happened to the 
pound of silver. " The ancient standard of the country — viz., 
the pound of copper," says Dr Barth, "has long since fallen into 
disuse, though the name {rotl) still remains." The price of 
commodities is still reckoned in the rotlj or pound, although 
the pound has disappeared from the currency. He tells us that 
as copper became inadequate to the wants of trade in that not 
very civilised but manifestly sensible community, cotton-strips 
of a certain size, and cotton shirts of various quality, came into 
use as a supplementary medium of exchange ; and of late another 
form or species of currency has been added to these — namely, 
cowries (shells), which were introduced by a foreign tribe which 
now constitutes the ruling race in Bornou. Still further, Euro- 
pean commerce has introduced also the Austrian and the Span- 
ish dollars, — and, what may seem strange, yet has its parallel in 
other parts of the world, the former of these coins, though of 
less intrinsic value, is better liked in Bornou than the latter.* 
Here, then, let it be observed, we have an original standard of 
copper, the name of which is preserved (just as our pound is) 
though the thing itself has disappeared from the currency ; and 
in lieu of this extinct form of money, we find cotton-strips and 
cotton shirts, shells, and silver coins, all adopted by the people. 
Startlingly various as are these forms of currency, they all agree 

* In the ports of China the reverse is the case,— the Spanish dollar, 
from being better known, bringing a higher price in proportion to the 
amount of silver v^hich it contains than any other of our European 
forms of silver-money. 


in this, that they 'are recognised by the people as mediums of 
exchange. And this is tlie sole indispensable requisite of any 
form of Money. Doubtless, the cotton-strips at first circulated 
simply as representatives of the pound of copper, and the 
co"\vi'ie-shells as representatives of the cotton-strips; but, by- 
and-by, as the strips and the shells became fully acknow- 
ledged as measures of value and uiediimis of exchange, they 
acquired a perfectly independent value of their own (as 
pound-notes have de facto with us). And mark this. The 
cotton is useful — the shells are iiseless: demonetise the for- 
mer, and it will still possess a value, — demonetise the latter, 
and they will be wholly worthless. Yet both circulate on equal 
terms. Why ? Precisely because each, though widely different 
in intrinsic value, is equally acknowledged as currency by the 
people. Now, cowrie-shells are just our paper-money in another 
form, though a much less perfect one. And thus, in this little 
State of Central Africa — in one of the most barbarous regions 
of the world — we find, firstly, an extinct and now merely 
nominal standard of value, precisely analogous to our pound 
sterling. Secondly, we find there, as in a lesser but not more 
reasonable form in this countiy, that the acknowledged repre- 
sentatives of that standard are modified from age to age by the 
wants of trade and the circumstances of the people. And, 
thirdly, we find that currency to comprise various elements — 
viz., (1) the precious metals, and (2) the principle of paper- 
money, blended with (3) a form of barter which is very con- 
venient to that African community, — just as silk-pieces form an 
established mediimi of exchange in the civilised and highly com- 
mercial empire of China. Principles express themselves by 
different names and in different forms in the various parts of the 
world, but the principles themselves (whether commercial or 
political) are wondrously akin. 

What do these things teach us ? What do the widely diff'erent 
forms of currency existing in the world, and the various changes 
from age to age in the currency of every country, suggest if 
not this : — First, that anything may be made currency, if the 
people agree to acknowledge it as such; and that many very 
different things may coexist as currency, and be equally valu- 




able as such, if the people decree or agree to accord to tlieni equi 
recognition as mediums of excliange. Secondly, a review of tlie 
monetary systems of different countries shows that all nations 
modify, and introduce new elements into, their currency from 
age to age, in accordance with the commercial wants and altered 
circumstances of the community; and also that those States 
will thrive best who act intelligently upon this j^rinciple, and 
avoid the folly of allowing the swaddling-clothes of th 
infjincy to become fetters upon their advancing growth. 

If we now repeat the question. What is a Pound ? we think 
the reader will hesitate to affirm the dogma of Sir R Peel that 
it is and can be nothing but a sovereign. Some generations 
. hence, owing to the progressive expansion of commerce and 
greater enlightenment on the part of our community, the pound 
sterling may be manufactured out of something much less costly 
than the present sovereign, though holdmg an equal recognised 
value, and, we doubt not, subject to fewer fluctuations. The 
pound sterling, in truth, is just a measure of value, as the yar^ 
is a measure of length, and the pound avoirdupois of weight. A 
pound sterling is no more merely a piece of gold, than a yard is 
a piece of wood. A certain length of wood, and a certain weight 
of gold minted in a certain form, may be representatives of 
those measures, and the medium through which they are applied 
to the uses of life ; but other tilings may represent those meas- 
ures as well. A yard will be a yard whether it be represented 
by three feet of wood, of iron, or of cotton tape ; and a pound 
sterling will be a pound sterling whether it be represented by 
gold, silver, or paper. As Length is an abstract thing, and its 
measures possess little or no value apart from the things meas- 
ured ; so Value is likewise an abstract thing, and its measures 
also need not possess any value apart from the things which 
they serve to measure. This is the true statement of the case. 

Commerce is a game which all the world is playing at, and 
Money is the counters by which the game is carried on. Differ- 
ent nations use different kinds of counters ; and it matters not 
of what those counters consist, so that they possess a recognised 
value in the sphere within which they are meant to circulate. 
The business of the world is to buy and sell, and our relative 


position is determined by the number of counters we hold : the 
more counters, the more land or labour or luxuries may be pur- 
chased. And, manifestly, the less costly those counters are, the 
better. If a set of men were to insist upon playing whist with 
pearl counters, what better would they be 1 Would the costly 
pearls better show the relative success of the players than if they 
used counters of paper or bone ? Certainly not. And we trust 
the British nation will speedily learn to apply this principle 
as a means of improving its currency, — which is at present not 
only most costly in material, but, what is far worse, liable to 
such sudden and excessive fluctuations in value as to violate the 
very first requisite of a currency — namely, stability of value. 

If we calmly review the circumstances of the late crisis (of 
1857), from its origin in the railway panic of the United States 
(greatly caused by the organised bearing operations of certain 
journals and speculators), which quickly extended to the whole 
commerce and banking of the Union, producing not only a sus- 
pension of payments to, but also a drain of specie from, this 
country, and thereby, under our antiquated currency-system, 
creating a similar but still more disastrous crisis in Great Bri- 
tain, which thereafter extended into France, Northern Germany, 
Denmark, and the Scandinavian kingdoms, besides sending a 
lessening wave of disaster to far California, Rio Janeiro, and 
Australia, — we think it will plainly appear that the " overtrad- 
ing," upon which so much stress has been laid, was merely the 
driblet of powder forming the train, that the panic in the United 
States was the spark which fired it, but that it was the defective 
currency-system of the times that formed the combustible mass 
ivhich bleiv the commerce of one-half of the civilised world into 
the air, and has paralysed the scared survivors ever since. Is 
it not a remarkable fact that it was precisely amongst the most 
civilised nations that the shock was most felt and the disaster 
greatest? What does this mean? It was the States most ad- 
vanced in commercial enterprise and civilisation — Great Britain, 
the United States, and Hamburg, — which proved most signally 
unequal to the emergency. How was this ? It was because m 
our commercial progress, all parts of the fabric have not ad- 
vanced ahreast. While Commerce has been advancing rapidly. 



our monetary system has lagged behind. While Trade has been 
extending immensely, its supports are restricted by principles 
suited only to a past and less developed state of things. This is 
the fundamental cause of the constantly-recurring crises of the 
last five-and-thirty years ; and the increased severity of each 
new catastrophe is just because every ten years our fettered 
monetary system is proving more and more inadequate to our 
expanding trade. The evil is not confined to our own shores — 
other nations likewise feel it, — but we suffer oftenest and most 
severely ; and this for two reasons — (1) because our currency- 
system is more fettered than that of any other country, and 
(2) because, even if it were not, our commercial system is so 
much more developed than theirs, that it suffers more from the 
sliackles of an antiquated system. 

What, then, is to be done ? Are we to attempt to shut our 
eyes, and abide by an impracticable system? Or shall we 
not rather revise our opinions, and review the whole ques- 
tion, in order to bring our monetary system abreast of the new 
era of developed trade and conmierce in which we find our- 
selves ? A century and a half has elapsed since banks and paper- 
money were established amongst us. That was a great step. 
Only a few able heads foresaw the wisdom of that measure, — the 
majority of would-be authorities were against it, foreboding from 
it disaster ; and nothing but the necessities of the State sufficed 
to secure its adoption. A similar advance is needed by the na- 
tion now, though doubtless it will encounter similar opposition. 
A century and a half ago, we had arrived at a point when the 
supplies of gold-money no longer sufficed to permit of the fur- 
ther expansion of commerce ; and the alternative was, either 
that the nation, though increasing in population, should remain 
nearly stationary in trade (the greatest calamity that can befall 
a people), or else that some means be devised for supplementing 
the supplies of gold in such a manner as to permit of further 
expansions on the part of trade, and of increased employment for 
the people. The institution of banks and paper-money accom- 
plished that end. 

The problem now is an infinitely easier but not less 
urgently needed one. We have outgrown the currency-system 


that sufficed a century ago ; and at the same time, misled by 
false theories, ve have abandoned the principles of common- 
sense and statesmanlike wisdom by which our fathers adapted 
that system to most trjing circimistances and exceptional times. 
We have gone backwards. The Act of 1844 places us in a worse 
condition, as regards the currency, than we were a century 
ago. Conmierce grows as well as population, and monetary in- 
stitutions need revision from age to age not less than jiolitical 
ones. Even if the Bank Act had not been passed, a time would 
have come when the currency-system of last century would have 
proved inadequate to the altered circumstances and expansion of 
trade. But that retrogratle Act — the principles of which might 
have been suitable in the 17th century, but were repudiated as 
antiquated by our grandsires of the 18th, and which are still 
more out of place in the middle of the 19th century — is the 
grand error which we must first remove. 

Paper-money during the last century served the purpose of 
supplementing the inadequate supply of gold-money in ordi- 
nary times : what it must be made to do now is, to supplement 
also that deficit in extraordinary times — or rather in times 
which, though once extraordinary, have now become common, 
or at least of steady recurrence. It was only in times of war 
that our fathers, the men of the past generation, found their 
currency- system inadequate; and at such times they boldly 
altered it, as they did not choose to be strangled for the sake 
of a theory. But commerce has so greatly extended in our 
day, so many nations now eagerly engage in it, that a drain of 
gold -money, which formerly used only to occur in times of 
war, has become a steadily recurrent feature of our com- 
mercial history even in times of peace. Every ten years such 
drains are becoming more certain in their occurrence, and more 
terribly severe in their consequences. They have become or- 
dinary occurrences, and must be provided for in our ordinary 
legislation. To equalise those temjjorary Jluctuations — to sup- 
plement the sudden ebbs of gold-money from our shores until 
it have time to return — is the prime and most urgent want of 
our mmutary and commercial systems. There are various ways 
in which this may be done, and it is of comparatively little 



moment which of these be adopted. But let it be done, 
required a great war, and serious necessities on the part of the 
State, before the founders of the Bank of England could carry 
their point, and introduce amongst ^^s the blessings of banking 
and paper-money, to which our wondrous subsequent prosperity 
has been mainly owing. In like manner, we believe that another 
great war, and the pressure of State necessities, will be needed 
before the errors of the Bullionist-theory will be fully recog- 
nised, and the monetary reform which we advocate be intro- 
duced. But as to the ultimate triumph of these views, we 
entertain not the slightest doubt. It will come as certainly as 
the end of the present century, — and we trust more speedily. 










British Quarterly Review. 

The author of this book holds rather an enviable position. He has pro- 
phesied — and he has lived to witness the fulfilment of his prophetic visions. 
To the mind ignorant of the deductive value of history, his book would be 
doubtless suggestive of Zadkiel himself. But Mr Patterson's philosophy is 
based neither on the language of the planets, nor on the mysterious figures 
of the Apocalypse, but simply on the logic of facts. . . . Such a small 
compass of history as the present generation has lived, has rarely been 
pregnant with so much logic. 

Kevne des Deux Mondes. 

Les articles de M. Patterson, reimprimds depuis en volume sous le titre 
de la Noxivelle Rivohition, lui aient valu la reputation de prophbte, et 
d'ingenieux penseur politique. 

The Dial. 

This book is a study in the history of the present time. The Emperor 
Napoleon, his character, his career, his policy, his imperial system, his 
place among European potentates, and the scope of his designs as affecting 
the state and prospects of European nations — such is the theme of Mr Pat- 
terson's book. . . . The book is, in all respects, able. . . . We have 
confidence in pronouncing these articles among the ablest contributions 
ever made to journalism, and in saying that Mr Patterson would be a dis- 
tinguished historian if he were not the distinguished editor of a Tory 
newspaper. His style is clear, nervous, and dignified, admirably adapted 
to the treatment of a grave historical subject, and rising at times into 
noble though chastened eloquence. 

Illustrated London News. 
The remarkable feature of the papers of which the volume consists is, 
that most of them were written at a time when the circumstances which 
they dwelt on were either unthought of or disregarded ; and therefore sub- 
sequent events have given to them a character of prescience which rises 
almost to the height of prophecy. 


macphail's Edinburgh llagaziue. 

If Mr Patterson's merits as a political writer be judged of by the truth- 
fulness of his speculations, he will be found to have scarcely a compeer. 
In his articles in ' Blackwood's Magazine/ almost every step that Napoleon 
has taken was predicted, and almost every political event forestalled. . . . 
The profound observations which this book contains, and the vigorous 
idiomatic style in which they are expressed, will interest the reader. 

Bell's Weekly Messenger. 

Whatever may be the eventual consequences to Europe of the modern Na- 
poleonic policy, it can never be said that there are not some far-seeing men 
on this side of the Channel who have not, from the very first moment of the 
Imperial career, marked its tendencies, and given warning of the natural 
results to be anticipated from its extraordinary manoeuvres. In all our 
experience we do not think we have met with one of these who has so 
thoroughly accomplished that purpose as Mr Patterson, the author of the 
book before us. ... At the close of 1856, Mr Patterson thvts wrote of 
the prospects of peace, and of the causes which must eventually induce war, 
the force of which has now the reality of a fulfilled prediction : — . . . 
This very important book ought to commend itself at once to every 
Englishman, and obtain hosts of readers. 

The British Controversialist. 

A masterly exposition of the designs and tactics of Napoleon III. It is 
full of cogent reasoning, singularly lucid explanations of the means, pur- 
poses, and results of the Imperial mancnuvi-es, and almost prophetic deduc- 
tions from the past facts regarding future exigencies. The style is vigor- 
ous and idiomatic ; and the far-seeing sagacity and sleuth-hound-like per- 
tinacity of logic in tracking the political purposes of the Ulysses of the 
Tuileries, supplies it with nerve, eloquence, and invective, as well as argu- 

Edinburgh Courant. 

A volume, which we may truly call remarkable, has just been published 
by the Messrs Blackwood. It contains a masterly exposition of the designs 
and tactics of the Emperor of France. ... A writer who shows himself 
so thoroughly well acquainted with the subject he undertakes, as to be 
able to anticipate the course of events with such remarkable exactness, is 
entitled to be listened to with profound attention. He can have no inter- 
est or object but truth. Party zeal will pervert a man's judgment, not 
strengthen and improve it ; but the judgment which shows itself to be so 
clear and correct in its inferences must move in a sphere far removed from 
the distorting medium of mere party. It is for this reason that we would 
invite attention to the remarkable exposition of the policy and plans of 
Napoleon as here unfolded. 

The Economist. 

*'The New Revolution" proceeds from a pen to which one of our weekly 
contemporaries has of late been deeply indebted. . . . Mr Patterson dif- 
fers in one important qualification of a public writer from the majority of 
those attached to the Conservative party. They are too generally neglect- 
ful of facts, somewhat careless of principle, and prone to personality. In 
the present brochure we are glad to notice that the writer's evident party- 
bias never leads him astray in this direction ; and that even Mr Bright is 
mentioned in a manner corresponding with the dignity of the critic. 



Morning Advertiser. 

Should any ardent Liberal take up this volume, making up his mind 
that, however cordially he may admire its ability, he must necessarily dis- 
agree with the author's sentiments, and with his view of men and meas- 
ures, he will enjoy a very agreeable disappointment. ... It would be 
well for the country if such a volume as this, in some cheap and popular 
form, could be scattered broadcast throughout the length and breadth of 
the land, perused and pondered by every thinking man in the entire com- 
munity. . . . The author is entitled to take his place in the foremost 
rank of the patriotic politicians of the present day. 

Morning Herald. 

To write contemporary history is proverbially an insurmountable diffi- 
culty. But the author of the present volume has been enabled to write a 
passage of contemporary history with a general correctness of outline, and 
a broad truth of interpretation, which there can be little doubt will stand 
the test of future criticism, when time shall have placed the world upon a 
vantage-ground from which to look back upon the Past as on a vast plain 
extended at its feet and visible in every detail. . . . Although the gen- 
eral tone which pervades the book is eminently calm and philosophically 
argumentative, the author at times rises to an unusual degree of warmth 
and emphasis, and becomes nervous and eloquent. 

St James's Chronicle. 

A very remarkable volume. . , . It is a graphic and almost prophetic 
sketch of the policy and principles of Louis Napoleon. . . . We do most 
earnestly beg of our readers to study Mr Patterson's work. It is thought- 
ful, dispassionate, and statesmanlike. 

Literary Gazette. 

The style is as vigorous as we have ever met with, and the invective is 
of the most powerful kind. We strongly recommend the book to the at- 
tention of our readers. 


Mr Patterson is right in looking upon Europe as upon the verge of a 
new revolution — a great change in boundaries, governments, and ideas. 
Mr Patterson well remarks: — "The rights of man, as \inderstood by the 
Convention, was the idea developed by the first Revolution : the rights of 
nations, as interpreted by Louis Napoleon, is the corollary idea which the 
new Revolution proposes to realise." Such a policy, if unchecked by sud- 
den accident or wise counteraction, must, as Mr Patterson supposes, end 
in a great war, in which it is difficult to imagine that we can escape. 




Author of " The New Revolution." 















Dublin University IVCagazine. 

Not often, whether in prose or verse, does the same man command both 
" the vision, and the faculty, divine." Not often is the original thinker 
endowed with a fluent and fascinating style, which takes captive the crowd 
by its beauty. Mr Patterson has this good fortune. He is an unquestion- 
ably original thinker, whom some readers might deem too daring ; and ho 
has a noble and eloquent style, which also some might consider too ornate. 
He is a writer so full of novel and unusual thoughts that he throws them 
into notes, and encloses them in parentheses. His writing is pictorial, and 
very full of colour, yet it never lacks precision. . . . We have hitherto 
made reference only to Mr Patterson's most thoughtful and philosophical 
essays. But the volume is diversified with "light reading." "Genius 
and Liberty " is a delightful essay, full of poetic ardour. " Youth and 
Summer" is nothing less than a prose poem — and that of no common kind. 
In "The Battle of the Styles" is condensed an immense amount of wit 
and wisdom. Mr Kuskin's delightful fallacies are treated with admirable 
humour ; and the despot of art is as pleasantly bantered by his reviewer 
as was Robert Montgomery by Macaulay. . . . We can sincerely con- 
gratulate Mr Patterson on having by this volume shown himself as original 
a thinker on subjects of general History and Art as he had previously 
proved himself to be on the contemporary history which we call Politics. 
He has insight, logic, humour, a noble and variable style — and can claim 
entrance by right to the first rank of authors of the day. 


In Mr Patterson's Essays we have a volume which no discerning reader 
will open only once. Fine appreciative taste and original observation are 
found united with range of thought and rare command over the powers of 
the English language. . . . Our judgment leads us to prefer his Historic 
dissertations. And the treatise we should adduce before all the rest in 
support of the high opinion we entertain of the author's powei's is that on 
"The National Life of China." For breadth and strength of handling, 


completeness of grasp, judicious arrangement of material, and lucid style, 
it is a model of what such a performance ought to be. . . . It is impos- 
sible to convey in a brief space any adequate impression of a collection of 
papers written on a variety of subjects, and holding in every page proofs 
of unusual research and capacity. To form a fair opinion of Mr Patterson's 
merits, readers must get his volume. 

Macphail's Edinburgli Magazine. 

A philosopher asserts that Genius is the power of attention, producing 
Originality. If this be so, no one can have a fairer claim to its possession 
than Mr Patterson, since all his writings are marked by a most striking 
originality, in thought and in expression. , . . Mr Patterson's present 
work is executed with great literary ability. The style is terse, vigorous, 
chaste, pictorial, and lively. Thoughts, original and suggestive, startle us 
in almost every page ; and the matter is of the most solid kind, — present- 
ing a striking contrast to the superficiality which characterises so many 
volumes of a similar description. 

Bevne des Deux Mondes. 

Cest un plaisir assez singulier que nous a procure la lecture des Essais 
reunis de M. Patterson. , . . M. Patterson est sans doute un homme 
supdrieur ; et il est loin de laisser faire ces instincts qui sont entr^s en lui 
par droit de naissance — ces g^nies de son temperament : toujours est-il 
qu'ils sont bieu en lui. Quoiqu'il ait aussi son c6t6 po^tique, c'est un es- 
prit essentiellement clair et logique,— qui aime k sp&uler, k embrasserdes 
vastes ensembles, et qui precede volontiers par des series consdcutives de 
raisonnements, — un esprit chez qui le besoin de comprendre, d'expliquer, 
et de rdsumer I'emporte d'une manifere decid^e sur le sentiment et sur les 
Amotions capricieuses de Timagination. . . . On ne sMtonne pas que ses ar- 
ticles sur la politique Napol^onienne (articles reimprim^s depuis en volume 
sous le titre de la Nouvelle Revoluiioii) lui aient valu la reputation de pro- 
ph^te et d'ingenieux penseur politique. S'il aime k g^neraliser, c'est en 
homme qui voit vraiment toutes les grandes donn^es d'une question. . . . 
Dans ses instincts, comme dans son intelligence, il n'a rien d'exclusif. 
Cette disposition a rendre 6gale justice k tous le sert bien dans ses appre- 
ciations. . . . Une des qualitis qui ont le plus contribud k sa superiority 
c'est qu'il est viril. II a le sentiment de la realite, — il ose la r^garder en 
face : et cela n'est pas un mince avantage pour dviter toutes les extrava- 
gances qui aujourd'hui s'appuient sur tant de naive sentimentalite. 

L'lndependance Beige. 

La lecture de ce livre atteste k chaque page que I'auteur traite de la 
peinture avec le pinceau d' Apelle, de la sculpture avec la ciseau de Phidias, 
de I'architecture avec le compas d'Ictinus. ... La nouveaute des aper9us 
etonne tout d'abord le lecteur, qui se prend k accuser I'auteur de m^taphy- 
sique ; mais bient6t il est force de revenir sur cette premiere impression 
devant la preuve mathematique. . . . Quant au style, il est toujours 
clair, mais toujours eloquent — toujours simple et toujo\irs attrayant. Enfin, 
c'est un de ces ouvrages qu'on ne lit pas k moitie, mais jusqu'au bout, et 
qu'on retrouve toujours avec plaisir. 

The Britisli Controversialist. 

In all of these Essays there may be found able writing and profitable read- 
ing — profound thought, and the issues of a mind of singularly prolific sug- 
gestiveness and breadth of culture — of a nature of excellent original mate- 
rial, well cultured and trained. . . . The essays on " Our Indian Em- 



pire" and "India: its Castes and Creeds," contain an extraordinary 
amount of historical information, philosophical speculation, political dis- 
cussion, moral hints, and religious suggestions, evidently at once the re- 
sults of wide study and of profound thought. . . . The essay ou China 
enters more completely into the state of thought, feeling, being, culture, 
and the influences of politics on these, than any book we have ever read 
on the Melchisedec of nations. 

Horning Herald. Ml 

A volume of essays of this kind is as rare as it is acceptable : rare, be- 
cause few men really qualified to deal with such subjects from practical 
knowledge can write with such power and elegance as Mr Patterson ; and 
acceptable, because modem essays are, for the most part, mere light exhi- 
bitions of gossip for readers of magazines. The papers in this volume are 
very various, both in choice of subject and in style of treatment ; but in 
them all are to be found traces of research and of cai-eful thought, com- 
bined with great freshness and originality in conveying information. . . . 
These Essays are worthy of the most careful study, not only of the general 
reader, but of the scholar and the statesman. They are leai'ned without 
being pedantic ; amusing without being trivial ; and marked throughout 
by purity and strength of thought and language. 

Morning Advertiser. fll 

Fully understanding and appreciating the refined and humanising pleas- 
ures of taste, Mr Patterson revels in a style copious and beautiful, replete 
with harmony and grace— at times simple yet poetic, never affected, and, 
when figurative, free from all exaggei-ated amplification. . . , The 
reader, led away by magnificent descriptions of the blue above and the 
green below — sapphire and emerald — imagines he is looking at those 
grand pictures by Turner (now growing mellow, and fast, we hope, eclips- 
ing Claude's) : while he is only perusing Mr Patterson's pages about the 
gorgeous sunset — clouds and sky filled with richest colouring — brilliant 
ever-shifting hues which at once dazzle and mock. We are gratified that 
we have a writer— our author — able to wield a pen with as much effect as 
the clever writer of ''The Stones of Venice." Mr Patterson's work does 
honour to the literature and art of our common country. 

The Globe. 

The tone of thought and feeling in these Essays is so thoroughly elevated 
above commonplace, that they deserve attention from ail with whom the 
banishment of commonplace in literature is a thing aimed at or longed for. 
. . . One of the best of these Essays is on " Real and Ideal Beauty." Mr 
Patterson has a fine feeling for true art, and propounds the theory of 
man's desire for Perfection as the cause of his love of the Beautiful. He 
is opposed to the Alison and Jeffrey "association theory," and has much to 
say on the subject of the Science of Proportion, and on the value of scien- 
tific method in Art-studies. . . . Mr Patterson's mind is not merely 
artistic. One of the best papers is on the Ethnology of Europe. The ac- 
count of the successive waves of races from the East, sweeping over Europe 
with more or less rapidity and completeness, is better than most similar 
accounts with which we are acquainted. It is concise, clear, and well 

Literary Budget. 

Writing which merely amuses is in these days so plentiful, that it is 
quite refreshing to meet with writing which suggests. Mr Patterson is a 
remarkably suggestive writer — a theorist of no commoxa order. . . . 


There are many parts of this thoughtful and suggestive book which we 
regret to leave unnoticed. It is a volume which any one who has a week's 
holiday should put in his knapsack, so that he may have fresh and start- 
ling thoughts while he sojourns amid the solitary mountains or beside the 
mystic sea. 

The Dial. 

Mr Patterson's Essays will bear comparison in almost every respect with 
the best compositions of the kind. They exhibit a sustained power and 
brilliancy which are highly uncommon ; and for closely-packed informa- 
tion, and steady flow of ingenious and pleasing thought, we know not 
where to find them surpassed. While sparing himself no labour, Mr Pat- 
terson exerts his utmost skill to save labour to the reader. His writing is 
perfectly lucid, and is accompanied by a glow of imaginative fire. One 
talent exhibited in rare perfection by Mr Patterson is this, that he can visit 
other lands in the pages of travellers' books, and give such vivid descrip- 
tions of what he has found within the boards that you feel certain he 
paints from sight. He depicts scenes of another hemisphere to the life. 
. . . Such is our honest opinion of this able and eloquent book. It is 
at once a magazine of information and a gymnasium for thought. 

Saturday Eeview. 

Mr Patterson is a really cultivated and accomplished man, who has read 
and thought much on the subjects about which he writes. . . . We 
have said enough to show that the present volume will repay perusal. 

niostrated London News. 

These Essays are from the pen of the author of a very remarkable work, 
entitled "The New Revolution; or, the Napoleonic Policy in Europe," 
which attracted attention soon after its publication, owing to the singular 
fulfilment of certain predictions which it contained. The present work is 
altogether of a different mould, and ranges through such a series of subjects 
that one rather wonders at meeting with a man so various as the author. 
There are about the Essays all the marks not only of a thorough acquaint- 
ance with their respective subjects, but a spirit and a tone which show that 
the author is writing from his own inspirations. 

Bevne Contemporaine. 

Un vif sentiment de la beaut€— un langage anime, color^, parfois lyrique 
— des aperijus souvent ingenieux, pr^tent un charme r^el h ces esquisses. 
La valeur principale du livre de M. Patterson, cependant, nous semble 6tre 
dans sa partie plus positive, — dans les Essays si ^tudi^s et si ^legamment 
Merits sur I'ethnographie de I'Europe, sur la vie nationale en Chine, et par- 
ticuliferement dans deux Etudes sur I'Inde, qui prennent presque la moiti^ 
du livre. On y reconnalt k chaque page la fdconde alliance de I'ecrivain 
drudit et de I'homme d'Etat. 

L'Avenir Commercial. 

La meilleure preuve que M, Patterson a 6t6 bien inspire en publiant ces 
Essais, c'est qu'il nous a int^resses h, des travaux tr^s varies. C'est en 
^crivant d'une mani^re atachante que I'auteur nous conduit de TEuropo 
aux Indes, des bords du Gauge en Chine, de I'empire du Milieu h. I'ile 
d'Utopie, — ou qu'il nous fait remonter aux temps oti florissait Ninive la 
puissante et Babylone la grande,— qu'il nous fait assister ensuite aux joMes 
oratoires de Grece, ou k un congr^s imaginaire, mais moderne, des Arts. 
. . . Disons en passant aux §conomistes et aux statisticiens, que les 



chiffres ne manquent pas absolument dans les articles de M. Patterson, 
luais ils sont si bien amens^, et employes avec tant de discernement et de 
sobrietd, qu'ou ne s'en aper^oit gufere. 

Eolnische Zeitnng. ' 

In the midst of the immense mass of works published on History and 
Art, Mr Patterson's book is a refreshing oasis for the mind. These Essays 
are distinguished alike by their profound learning and by the originality 
of their contents. ... A work of genius — of eminent value. 

China Hail ( Hong-Eong ). 

Mr Patterson's Essay on " The National Life of China" is by far the best 
risuvie and bird's-eye view of the history of China that we have yet come 
across. Indeed there is nothing of the kind elsewhere with which it can 
be compared; and we cordially commend it to all those who really desire 
to make themselves acquainted with the history of China and the character 
of its national life. 

Dublin Warder. 

These Essays are the production of a hujjpily- constituted intellect — far- 
seeing, comprehensive, unprejudiced, lucid, many-sided, richly informed, 
. . . While the book is sure to be welcomed by the Artist and the 
Philosopher, it cannot fail to be acceptable to every class of intelligent 
readers, owing both to the interesting nature of the topics, and to the clear 
and finished style in which the information is conveyed. We have had 
such refined and elevated pleasure in reading these Essays as does not often 
fall to the lot of the critic. . . . Mr Patterson is a man of rare powers 
of mind, and his work is well worthy of an honoured place among the 
choicest volumes in the library of persons of taste and erudition. 

Liverpool Albion. 

The subjects treated of are varied, and all interesting in themselves, while 
they claim a wide extent of general attention from the felicitous mode in 
which they are regarded and displayed by the author. ... In the first 
three essays, which are so kindred in relation as to form almost a unity in 
design, there is manifested a fine play of speculative philosophy, which, 
without fettering by dogmatic rules, leads directly to practical results. 
The author of these Essays is obviously well skilled in those peculiar ele- 
ments of thought which enable a man to take a comprehensive view of 
artistic composition. Shakespeare says of Cassius, with telling aptitude of 

" lie looks 
Quite through the deeds of men ; " 

and with somewhat of a similar aptness of remark, it may be said of Mr 
Patterson, he looks quite through the composition of an artistic work, and 
to a nicety can tell how far it agrees or disagrees with the philosophic 
canons of true art. More than this, he possesses a singular and pleasing 
facility in dressing his A^iews so as to present them to the mind's eye 
with vividness and grace. . . . The volume will form a valuable acqui- 
sition to any library. 

Clmrcli and State Eeview. 

Mr Patterson has long been well known in the world of journalism as an 
accomplished and elegant writer. The present collection of Essays testi- 
fies to the justice of such a representation, and moreover displays the wide 


range of his knowledge and the superiority of his judgment. His previous 
work upon the Napoleonic Policy in Europe — though a masterpiece of acute 
reasoning, and a model for the writing of a political tractate — gave his 
readers no reason to expect the knowledge possessed by the author in 
Esthetics, as well as in the less-known fields of History, Mr Patterson 
may serve as an illustration of a theory which we are inclined to maintain — 
namely, that the soundest political knowledge is most likely to exist in 
conjimction with a refined taste and a broad general culture. 

Edinburgli Courant. 

Mr Patterson's Essays are the results of thought and study ; and his 
volume is well worth the perusal of reading men. His best quality is a 
comprehensiveness — a power of grasping a subject as a whole, which proves 
him to have not only a sound but a wide intellect. The papers bring to- 
gether within a brief compass a very remarkable amount of knowledge and 
speculation ; and the accumulated store is lighted up by an active and 
lively fancy — so that, in fact, there is nothing heavy in the book, even when 
the subject is of the heaviest. 

Scotsman. '^ 

Tn his generalisations of history, Mr Patterson displays extensive know- 
ledge and much grasp of thought. . . . His forte is pretty hard thought 
and historical generalisation. 

The Scottish Press. 

Mr Patterson is a \\Titer of unusual depth and brilliancy ; and he pos- 
sesses the power of reproducing his thoughts in new forms, and in clear and 
eloquent language. His penetration and vast range of information, his 
fine appreciation, his enlarged and genial sympathies, and above all — at 
least as regards effect — his rich, rolling, and often grandly picturesque 
style, render him a writer of rare attractions, and, in his own domain, give 
him a place second to none of our popular authors. . , . One point 
has especially impressed us — the extent and definiteness of the author's 
information. This is seen in every page : in almost every sentence there 
comes in some fact or incident or allusion which illustrates the page, and 
perhaps throws a flood of light on some important question or previously 
beclouded circumstance. ... Mr Patterson has invested History with 
a living interest, and Art with a living beauty. ... In the essay on 
" Real and Ideal Beauty," Mr Patterson combats the Association theory 
in Art with a power and an eloquence which all will acknowledge. The 
Essay reads like a poem, — with this addition, that it is full of facts, and 
bears the stamp of a philosophical and logical mind. We have met with 
no recent critic who can represent Art in such tangible and attractive 
forms, and who in its discussion evinces such rational and enlightened 

AyrsMre Express. 

A thoughtful, edifying, and ennobling volume. Mr Patterson is none of 
those perfunctory literateurs of-all-work, useful enough in their way, but 
with no pretensions to culture or scientific exactitude, who so industriously 
and ingeniously get up what is knovm as the " padding " of the magazines. 
A man of fine natural powers, developed by practice and disciplined by 
hard study, he treats every subject he undertakes with a consciousness of 
strength refreshingly free from presimiption and dogmatism. Before you 
have been long in his company, you are constrained to feel that you are 

2 G 




holding communion with a mind equal to everything with which it attempts 
to grapple. The versatility that originally repelled you soon asserts an 
overmastering influence, which first interests and then charms. Turning 
from the subtleties of Art-criticism, out of mere curiosity, you wander into 
the regions of Historical disquisition to find that there your Mentor is him- 
self, and has the faculty of making you, quite as much at home. . . . 
So much for the speculative department of the volume. The practical has 
even stronger claims on our attention and approval. Our author has the 
rare faculty of applying his extensive reading to great purpose, and of con- 
ducting an historical narrative in such a way that the reflections inter- 
spersed do not mar its continuity or detract from the general effect. His 
papers on India and China are masterly in the extreme, affording a fino 
and informing glimpse of the peculiarities of these two colossal empires. 
Indeed we do not know where so much valuable matter relating to the 
customs and recent changes in both can be found compressed within the 
same limits. 

Dundee Advertiser. 

A valuable book, Mr Patterson is one of a class of writers which is noti 
increasing. He brings to his work an amount of careful study seldom 
found in these times. His Essays are not dashed off", like the produc- 
tions of the scene-painter, to charm for an idle hour ; but are like the works 
of those old builders who never forgot that they were building for all time. 
He is a workman of the highest class. Like the granite workers of Aber- 
deen, he may not get on so fast as his brethren in the stucco department ; 
but then his material carries an exquisite polish, and lasts for ever. Sober 
thought and accurate information, expressed with a quiet, chaste elegance, 
are the great attractions of these Essays. The reader feels that the essayist 
is a scholar, a thinker, a man of fine intellect, of amazing information, of 
ndefatigable industry, and of the most cultivated tastes. It is rare that 
a writer so learned exhibits his learning with so much grace of manner, — or 
that one so thoughtful clothes his thoughts with so much elegance of ex- 
pression, — or that one labouring amid such an embarrassing wealth of facts 
as he evidently has at command can with such a poetic play or fancy adoni 
his work. There is a fervid, gushing eloquence in all the papers where the 
nature of the subject admits of the author giving the reins to his imagina- 
tion. His Essays have all the attractions of those Greek temples, witli 
whose harmonious proportions, vast strength, enduring substantiality, and 
elegant decorations he is in love. 







Author of the * Physical Atlas,' 4c. 

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